International Journal of Social Economics

Impact of financial inclusion on poverty alleviation through cooperative banks

Tarsem Lal,
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Tarsem Lal, (2018) "Impact of financial inclusion on poverty alleviation through cooperative banks",
International Journal of Social Economics, Vol. 45 Issue: 5, pp.808-828, https://doi.org/10.1108/
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IJSE
45,5
808
Received 10 May 2017
Revised 23 June 2017
17 September 2017
Accepted 4 October 2017
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International Journal of Social
Economics
Vol. 45 No. 5, 2018
pp. 808-828
© Emerald Publishing Limited
0306-8293
DOI 10.1108/IJSE-05-2017-0194
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0306-8293.htm
Impact of financial inclusion on
poverty alleviation through
cooperative banks
Tarsem Lal
Commerce, University of Jammu Faculty of Business Studies, Jammu, India
Abstract
Purpose – The purpose of this paper is to examine the impact of financial inclusion on poverty alleviation
through cooperative banks.
Design/methodology/approach – In order to fulfil the objectives of the study, primary data were collected
from 540 beneficiaries of cooperative banks operating in three northern states of India, i.e., J&K, Himachal
Pradesh (HP) and Punjab using purposive sampling during July-December 2015. The technique of factor
analysis had been used for summarisation of the total data into minimum factors. For checking the validity
and reliability of the data, the second-order CFA was performed. Statistical techniques like one-way ANOVA,
t-test and SEM were used for data analysis.
Findings – The study results reveal that financial inclusion through cooperative banks has a direct and
significant impact on poverty alleviation. The study highlights that access to basic financial services such as
savings, loans, insurance, credit, etc., through financial inclusion has generated a positive impact on the lives
of the poor and help them to come out of the clutches of poverty.
Research limitations/implications – The study was conducted amidst few limitations. First, the in-depth
analysis of the study is restricted to three northern states only because of limited resources and time
availability. Second, the study is limited to the perception of financial inclusion beneficiaries only, which,
in future, could be carried further on the perception of other stakeholders such as bank officials, business
correspondents, village panchayats, etc.
Originality/value – The study makes contribution towards the financial inclusion literature relating to
poverty alleviation and fulfils the research gap to some extent by assessing the impact of financial inclusion
on poverty alleviation through cooperative banks. This paper can help the policymakers and other
stakeholders of cooperative banks in promoting banking habits among poor rural households both at the
national and international level.
Keywords Access, SEM, Financial inclusion, Cooperatives, Poverty, Finance
Paper type Research paper
Introduction
Indian economy is one of the fastest growing economies in the world, but 22 per cent of the
total populations are living below poverty line (BPL), which is much poorer than the world
average of 18 per cent (Sarojit, 2015). Despite various schemes launched by the government
of India like Mahatma Gandhi National Rural Employment Guarantee Act, Indira Awas
Yojana, Indira Gandhi Old Age Pension Scheme and National Family Benefit Scheme for the
poor people, poverty and income inequality remain an obstinate challenge in India
(Avais, 2014). The majority of the people in India have no relationship with the banks.
Financial inclusion through cooperative banks is often considered as an effective way for
poverty reduction, as access to finance enables economic agents to make long-term
consumption and investment decisions, participate in productive activities and cope with
unexpected short-term shocks (Caskey et al., 2006). It is both a vital link and considerable
first step towards achieving compendious growth (Lakshmi and Visalakshmi, 2013). Access
to finance, especially by the poor and helpless groups, is a pre-requisite for employment,
economic growth, poverty reduction and social cohesion, as it provides them an opportunity to
have a bank account, to save and invest, to insure their homes and facilitate them to break the
chain of poverty (Rahman, 2009; Chakrabarty, 2011). Enhanced access to credit by the poor
enables them to pull themselves out of poverty by investing in their human capital and
 microenterprises, thus reducing aggregate poverty (Sukhla et al., 2012; Chibango, 2014). Impact of
Understanding the link between financial inclusion, poverty and income inequality at the financial
country level will help policymakers design and implement programmes that will broaden inclusion
access to financial services, leading to reduction of poverty incidence and income equality
(World Bank, 2001). In addition, financial inclusion through cooperative banks has the
potential to reduce poverty and to enhance the socio-economic conditions of the lowest deciles.
The new financial products and services which are especially targeted to the rural poor can 809
play an important role in socio-economic development in a rural society which ultimately leads
to poverty reduction (Kelkar, 2010; Devaki, 2008).

Poverty scenario of Jammu and Kashmir

In the face of high-class malls, large cars and real estate developing in a big way in Jammu
and Kashmir, the state also shares embarrassment of having everyone in five persons under
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the poverty line. The report of the planning commission reveals that there has been a steady
increase in poverty in the last two decades and estimated the population of BPL residents is
almost at 21.63 per cent of total population of the state. The number comes to 24.21 lakh
persons of whom 26.14 per cent (22.00 lakh persons) are from rural area and 7.96 per cent
(2.21 lakh persons) live in urban areas. In Jammu division, the total BPL population has been
estimated at 10.59 lakh persons with the majority of the poor in villages. In Kashmir region,
the proportion of the poor is 21.37 per cent of the population with a maximum number of
poor (11.63 lakh) in rural areas and 7.87 per cent (1.28 lakh) in urban areas. Among the
various districts of Jammu and Kashmir, seven show acute poverty at 30-40 per cent, nine
have poverty between 0 and 30 per cent, five have poverty between 10 and 20 per cent and
one has the lowest number of poor at 4.55 per cent. The seven poorest districts are
Reasi, Ramban, Kishtwar, Poonch, Kupwara, Kargil and Bandipora.

Role of cooperatives in financial inclusion

Recently, the Indian economy has gained rising policy attention towards the concept of inclusive
growth ( Jaiswal and Bhasin, 2015). The main driver for such growth is a well-developed and
comprehensive financial system, an extension of financial literacy and streamlining of credit
delivery mechanisms (Manju and Mohika, 2014; Government of India, 2006). In an attempt to
build an effective way and a new delivery mechanism that fulfills the small and frequent needs
of the weaker sections of the society, cooperative banks have emerged as the best way to reach
underprivileged and low-income segment of society that is excluded from the benefits of
delivery of financial services at affordable costs (Buckland et al., 2011; Kempson et al., 2004;
Anjugam, 2011). The cooperative bank structure is designed on the principle of mutual help,
open membership, democratic control, economic participation, autonomy, training concern
for the community, etc. (Anubumani, 2007). The sense of cooperation is highly essential to
exploit the vast economic energy that is waiting to be unleashed in the rural poor (Ramji, 2013;
Chibba, 2009). Experiences in the developing nations have also reconfirmed the need for
cooperative banks to bring about the inclusion of this segment in the mainstream economy
(Mohan, 2006). Ever since the beginning, cooperative banks have shown remarkable growth in
volume and complexity by making available institutional credit at reasonable cost, particularly
in the rural areas, but the accessibility of financial services to a common man still remains a
dream for many rural people (Banerjee and Francis, 2014). Macroeconomic evidence indicates
that access to financial services through well-developed financial systems including cooperative
banks act as a catalyst for socio-economic empowerment and economic development
(Sharma, 2010). This access helps in building self-confidence, promoting social inclusion, gaining
financial empowerment and consequently leading to social and economic empowerment of rural
population, especially the poor, underprivileged, low-skilled rural households and women
(Divya, 2014; Uma et al., 2013; Paramasivan and Ganeshkumar, 2013).
 IJSE Review of literature
45,5 The comprehensive growth of the economy cannot bring social justice and unprejudiced
development unless it is coupled with poverty alleviation and employment-generating
opportunities for deprived and marginalised sections of the society (Chibango, 2014;
Donnan, 2015). The menace of backwardness, redundancy and poverty is interwoven and
constitutes a vicious circle (Krishna and Shariff, 2011). Poverty is general scarcity or
810 dearth or the state of one who lacks a certain amount of material possessions or money
(Bhagwati and Panagariya, 2013; Arvind, 2008). It refers to the deprivation of basic
human needs, which commonly include food, water, sanitation, clothing, shelter,
health care and education (Sen, 1983; Erenstein, 2011). Poverty may also be understood as
a facet of asymmetrical social status and inequitable social relationships, experienced as
social exclusion, dependency and diminished capacity to participate or to develop
meaningful connections with other people in society (Davis, 2002). It is a barrier between
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entitlement, access to income, employment and basic necessities of life. Besides,

the poor and weaker sections of the society are exposed to the exploitation of various
kinds including social discrimination (Datt, 1998). Poverty is one of the serious problems
of the present generation. It limits awareness of their rights and their ability to
access legal institutions to protect those rights (Banerjee and Somanathan, 2007). They are
often trapped in this situation for most of their lives with little hope for themselves
and their children (Richard, 1997; Chandy and Kharas, 2014). Poverty is one of the core
problems of every economy all over the world. Approximately, 1.2 billion people – about
one-fifth of the world population - live below the extreme poverty line of $1 a day in the
late 1990s. If we use the $2 line, this number rises to 2.8 billion, more than half of the
world’s population (Ravallion et al., 2009). Though these consumption measures represent
material standards of living- food, clothing, shelter, transportation, fuel, education
and so on -they also correlate closely with wider notions of capabilities and well-being
(Alkire and Summer, 2013).
Studies conducted by Sarath Chandra and Manju (2010), Beck et al. (2007), and Sarma
and Pais (2008) concluded that financial inclusion is both pro-poor as well as pro-growth.
They pointed out that financial inclusion helps low-income households to access basic
financial services like savings, credit and insurance, which, in turn, fosters their financial
autonomy and thus amplifies economic growth. They advocated that enhanced financial
services not only raises economic growth but also reduces poverty and income
inequalities. Levine (1997) documented that countries with a large number of financial
institutions grow faster over subsequent decades. A cross-country regression analysis
suggests that countries having low GDP per capita, relatively higher levels of income
inequality, low rates of literacy, low urbanisation and poor connectivity seem to be less
financially inclusive (Sarma and Pais, 2008). Rangarajan, C. (2008) clarified that fiscal
growth and social development are the two legs on which a nation must walk and financial
inclusion is one aspect of inclusive growth. Inclusive growth cannot come without
bringing the disadvantaged section of the society within the ambit of the organised
financial system of the country (Kumar, 2015; Chakrabarty, 2011). Inclusive growth aims
to put together the country’s poor in its growth flight. Financial inclusion offers
incremental and balancing solutions to tackle poverty to promote inclusive development
and to address the Millennium Development Goals ( Jalan, 2009). Explained that access to
basic financial services is an imperative instrument both for economic growth and social
development. He asserted that financial inclusion should be viewed as a process of
understanding the poor, their lives, their needs, their efficiency and their helplessness. He
concluded that if a poor person has to participate in the economic growth of the country,
he should have the opportunity to access a wide range of financial services such as
savings, credit, remittances, insurance, etc.
 Nature and scope of the study Impact of
The present study is both expressive and evaluative in nature. It examines the impact of financial
financial inclusion on poverty alleviation through cooperative banks. The scope of the study inclusion
is limited to three northern states, namely J&K, Punjab and Himachal Pradesh (HP). Data
were collected from beneficiaries of financial inclusion belonging to four Cooperative banks
from J&K State, namely The Citizen Cooperative Bank, The Jammu Central Cooperative
Bank, Devika Urban Cooperative Bank Ltd, Women Cooperative Credit Bank, three 811
cooperative banks from Punjab, namely The Amritsar Central Cooperative Bank Limited,
Punjab (TACCBLP), The Gurdaspur Central Cooperative Bank Limited, Punjab (TGCCBLP)
and The Hindu Cooperative Bank Limited, Punjab (THCBLP), and The Kangra Central
Cooperative Bank (KCCB) from HP.

Need of the study

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For the past few decades, cooperative banks have shown tremendous growth in volume and
complexity. Despite making significant improvements in all the areas relating to financial
viability, profitability and competitiveness, there are concerns that cooperative banks have
not been able to include a vast segment of the population, especially the underprivileged
sections of the society, into the fold of basic financial services (Sarangi et al., 2005).
The reasons identified are low profitability, interference of Govt. ever-growing
non-performing assets, non-recovery of interest and instalments on loan portfolio, erosion
of capital base, high level of loan delinquency, inappropriate credit policies, deficiency in
application of computerised system, inadequate internal controls governance system and
lack of awareness regarding the rules and regulations of cooperative institutions among
masses (McKee, 2007). In spite of various steps taken by the Govt., its operational efficiency
and socio-economic importance invariably remained unsatisfactory. Most of the studies
reviewed were conceptual in nature and few of them have been based on secondary
information. The nature and extent of “Impact of Financial Inclusion on poverty alleviation
through Cooperatives” remained untouched in the existing literature. Thus, the aforesaid
gap in the literature necessitated the present work which can prove to be an asset to the
policymakers and the stakeholders of cooperative banks both at the national and
international level.

Objectives of the study

The present study is based on the following objectives:
• to assess the impact of financial inclusion on poverty alleviation through cooperative
banks;
• to evaluate the demographic profile-wise mean satisfaction of beneficiaries regarding
rural development; and
• to offer suggestions for poverty alleviation through the financial inclusion initiatives
of cooperative banks.

Hypotheses development
Financial inclusion is a necessary condition for financial deepening which helps to address
the basic issue of growth with equity. It is mainly concerned with the eradication of poverty.
Poverty alleviation has all along been the priority goal of Indian polity, and financial
inclusion is considered a pre-requisite for poverty reduction (Sarojit, 2015; Sen, 1983; Alkire
and Summer, 2013). A well-developed financial system can effectively alleviate poverty
(Rahman, 2013). Certain groups of societies are systematically disadvantaged because they
are discriminated on the basis of their ethnicity, race, religion, sexual orientation, caste,
 IJSE descent, gender, age, disability, HIV status, and migrant status (DFID, 2005). Access to
45,5 financial services enables the poor to fight the various dimensions of poverty and make
improvement in their lives, and provides momentum for the growth and development
(Reeta and Pant, 2010; Avais, 2014). Mishra (2012) identified the close connection between
poverty and financial inclusion, which can lead to estrangement, alienation and reduced
participation in society by low-income families. Financial inclusion through cooperative
812 banks is the key to empowerment of poor, underprivileged and low-skilled rural households
( Jaiswal and Bhasin, 2015; Sharma, 2010). Through financial inclusion, cooperative banks
increase the economic opportunities for the poor and low-income people, which lead towards
a positive result in social progress, economic development, economic empowerment and
social/political/legal empowerment (Sarojit, 2015; Mishra, 2012; Divya, 2014). Thus, it is
hypothesised that:
H1. Financial inclusion through cooperative banks has a significant impact on poverty
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alleviation.
The significance of cooperative banks has soared in recent years with the emergence of
financial inclusion as a key thrust of public policy in India (Nayak, 2012). In spite of making
significant improvements in all areas, cooperative banks have failed to include large sections
of the society into the fold of basic financial services, especially the poor and vulnerable
section of society due to poor infrastructure, lack of awareness, lack of quality management,
lack of strong human resource policy, dormant membership and overdependence on
government (Lakshmi and Visalakshmi, 2013; Kelkar, 2010). The literature on financial
inclusion in cooperatives has shown that the exclusion from the cooperative financial system
occurs to a person who belongs to a low-income group, the ethnic minorities, immigrants and
the aged (Thorat, 2007; Yener, 2006). Geographical factors such as people living in rural areas
and in a location that is remote are more likely to be financially excluded (Lazikova et al., 2008;
Laidlaw, 2001). Thus, it is hypothesised that:
H2. Beneficiaries with different socio-economic profile differ with regard to poverty
alleviation through cooperative banks.

Nature and source of information

In the present study, both primary as well as secondary data were used to accomplish the
purpose and various objectives of the study. The primary data were collected through
questionnaire from beneficiaries of the four cooperative banks covered under financial
inclusion drive of RBI, operating in Jammu region, i.e. The Citizen Cooperative Bank,
The Jammu Central Cooperative Bank, Devika Urban Cooperative Bank Ltd and Women
Cooperative Credit Bank. The responses were collected using a self-developed questionnaire
sub-divided into socio-economic variables and specific information regarding various
dimensions of financial inclusion. For comparison, responses from beneficiaries of
cooperative banks operating in neighbouring tehsils of HP, i.e., The KCCB, and beneficiaries
of three cooperative banks from the state of Punjab, i.e., TACCBLP, TGCCBLP and
TTHCBLP, were collected. Secondary information was collected from published sources, i.e.,
books, journals, files, cooperative bulletins, organisational reports, Annual Drafts of
Planning and Statistical Department (Government of J&K, HP and Punjab), RBI reports,
magazines and internet.

Pre-testing
In order to calculate the final sample size, pre-testing was done on 60 beneficiaries covered
under the financial inclusion drive of RBI. The respondents were selected on judgement
basis, selecting 60 respondents each from three states, namely, J&K, HP and Punjab.
 After tabulation of pre-testing results, some items were modified and few were deleted and Impact of
ultimately 19 items were retained for final survey. The final sample size arrived at 789 using financial
following formula (Malhotra, 2002), which is round off to 800: inclusion
n ¼ s2  z2 =D2

813
Data collection
To collect the primary data for the study, a multi-stage sampling technique was followed.
In the first stage, the Jammu division was sub-divided into hilly and non-hilly districts. Hilly
districts were identified as Udhampur, Doda, Kishtwar, Rajouri, Reasi, Ramban and Poonch
and non-hilly districts were identified as Jammu, Samba and Kathua. In the second stage,
out of seven hilly districts, two districts, i.e., Udhampur and Doda, were selected and others
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were ignored due to inability to contact beneficiaries because of law and order problem. Due
to the high concentration of financial-inclusioned beneficiaries, all the non-hilly districts,
namely, Jammu, Samba and Kathua, were included for the final survey. In the third stage,
selected districts were further sub-divided into tehsils and those tehsils having a maximum
density of financial inclusion beneficiaries were selected. The purposive sampling technique
was adopted in contacting beneficiaries in selected tehsils (Table I).

Name of No. of beneficiaries

Geographical area districts Name of tehsils contacted Effective response rate
Stage I Stage II Stage III Stage IV Stage V

Hilly districts Udhampur Udhampur 26 18

Chenani 19 12
Ramnagar – –
Majalta – –
Doda Bhaderwah 76 44
Doda – –
Gandoh – –
Thathri – –
Kishtwar – – –
Rajouri – – –
Reasi – – –
Ramban – – –
Poonch – – –
Non-hilly districts Jammu Jammu 93 58
Akhnoor – –
Bishnah – –
Ranbir singh – –
pora
Samba Samba 67 52
Bari 34 27
Brahamana
Kathua Kathua 59 41
Billawar – –
Hiranagar – –
Bashohli – – Table I.
Bani – – Multi-stage sampling
Total 374 252 used for collecting
Source: Data analysis primary data
 IJSE For comparison purposes, beneficiaries of cooperative banks operating in neighbouring
45,5 tehsils of HP (HP) and Punjab states, having similar topography, were also contacted based on
judgement sampling, criteria adopted were availability and willingness to respond (Table II).
Questionnaires were distributed to 800 beneficiaries but 557 responded back. Out of 557
respondents, 17 questionnaires were rejected because of incomplete response, so the final
sample size came to 540 respondents. The effective response rate came out to be 67.5 per cent.
814 Table III shows the demographic profile of respondents contacted during the period of study.

Normality
Normality in the present study was assessed by two ways:
(1) Graphical method: graphically, Q-Q plot and Box plot were used to check the
normalcy of the data which indicated that the data were normally distributed.
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(2) Numeric method: apart from the graphical analysis of normality, the study uses two
statistical tests, i.e., Skewness and Kurtosis, with the help of SPSS 17.0 version and the
value of Skewness and Kurtosis were −0.224 and 0.215, respectively, which are in
between threshold limit of ±1. This shows that the data were normally distributed.

Statistical tools and techniques applied

The following statistical techniques have been applied for data analysis:
• exploratory factor analysis (EFA);
• confirmatory factor analysis (CFA);
• structural equation modelling (SEM);
• one-way ANOVA; and
• independent sample t-test.

Data analysis and interpretation

Perception about the impact of cooperative banks on area development through financial
inclusion among the beneficiaries was examined under the following sub-heads:
• scale purification;
• CFA;
• one-way ANOVA;
• output from t-test; and
• relationship between financial inclusion and area development through cooperative
banks using SEM.

State Name of districts Name of tehsils No. of beneficiaries contacted Effective response rate

Himachal Pradesh Kangra Nurpur 175 134

Punjab Pathankot Pathankot 77 58
Table II. Gurdaspur Gurdaspur 108 74
Collection of primary Amritsar Amritsar 66 39
data from HP Total 426 305
and Punjab Source: Data analysis
 Variables Frequency Percentage (%)
Impact of
financial
Age inclusion
20-30 years 98 18
30-40 years 194 36
40-50 years 163 30
Above 50 years 85 16
Total 540 100 815
Gender
Male 437 81
Female 103 19
Total 540 100
Qualification
Under matriculation 79 15
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Matriculate 94 17
10+2 137 25
Undergraduate 59 11
Graduate 118 22
PG and above 53 10
Total 540 100
Marital status
Married 436 81
Unmarried 104 19
Total 540 100
Occupation
Service 127 24
Business 174 32
Farmers 61 11
Others 178 33
Total 540 100
Monthly income
Up to Rs5,000 78 14
Rs5,000-10,000 116 21
Rs10,000-20,000 124 23
Rs20,000-30,000 117 22
Above Rs30,000 105 20
Total 540 100
Religion
Hindu 410 76
Muslim 44 08
Sikh 76 14
Others 10 02
Total 540 100
State
J&K 244 45
Punjab 161 30
Himachal 135 25
Total 540 100
Bank
Central Cooperative Bank, Jammu 97 18
Citizen Cooperative Bank, Jammu 103 19
Table III.
Demographic profiles
(continued ) of respondents
 IJSE
Variables Frequency Percentage (%)
45,5
Women Cooperative Credit Society, Jammu 44 08
Kangra Central Cooperative Bank, Himachal Pradesh 135 25
The Amritsar Central Cooperative Bank Ltd, Punjab 58 11
The Gurdaspur Central Cooperative Bank Ltd, Punjab 49 09
The Hindu Central Cooperative Bank Ltd, Punjab 54 10
816 Total 540 100
Loan availed
Yes 243 45
No 297 55
Total 540 100
Purpose of loan
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Agriculture 81 33
Dairy farming 34 14
Business 51 21
Education 15 06
Marriage 20 08
Health 17 07
Others 25 11
Total 540 100
Table III. Source: Survey

Scale purification
Purification of constructs administered on beneficiaries of financial inclusion through
cooperatives is separately carried out using SPSS (version 17.00). The technique of factor
analysis with the process of principal component analysis along with varimax rotation
brought the construct to the level of 15 statements out of 19 statements originally kept in the
domain of poverty alleviation with variance explained at 64.563 per cent and KMO value
above 0.7 and Bartlett value of 2351.865 (Table IV ). The factor loadings range from 0.519 to
0.815 and the cumulative variance ranges from 30.533 to 64.563 per cent (Table V and VI). The
communalities and percentage of variance explained by each factor are depicted in Table X.
A brief description of two factors emerged is as under.

Variance Items No of factors No of items Bartlett test of

Rounds explained emerged extracted Iterations deleted KMO sphercity

Table IV. 1 67.692 19 4 8 2 0.687 3728.553

Output from factor 2 64.389 17 3 7 2 0.689 3047.202
analysis with regard 3 64.563 15 2 7 – 0.721 2351.865
to poverty alleviation Source: Data analysis

Total Items CMIN/

Table V. Dimensions Rounds Items deleted DF GFI AGFI TLI CFI RMR RMSEA
Results of
confirmatory factor Poverty alleviation 1 15 1 5.617 0.863 0.873 0.867 0.062 0.69 0.116
analysis (CFA) 2 14 – 3.868 0.928 0.941 0.922 0.920 0.046 0.079
fit indices Source: Data analysis
 Factor 1: poverty eradication Impact of
This factor consists of eleven items, such as “FI has increased number of electrical devices in financial
your home,” “You consume more quality food than before”, “Your health has improved by inclusion
having quality food”, “FI has raised the quality of flooring material”, “FI has increased your
value of dwelling”, “Cooperative rural financing programme have a positive impact on
poverty reduction among the poor”, “Your consumption level has increased,” “Poverty
reduction has been an important goal of FI”, “You frequently purchased basic goods”, “Your 817
expenditure on luxuries has increased” and “Your expenditure on clothing has increased”.
The mean values for all items fall between 3.26 and 4.29, factor loading 0.519 and 0.815 and
communalities range from 0.569 to 0.758. This factor underlines that financial inclusion
through cooperative banks has a positive impact on poverty reduction among the poor, as it
enables the beneficiaries in raising living standard, obtaining quality food, frequently
purchasing basic goods, increasing the quality of flooring material, increasing consumption
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level and acquiring cloths and luxuries.

Factor 2: poverty eradication through education

Four items identified by this factor are “Most of the members in your family are educated”,
“House head is educated enough to guide other members to move on right track”, “Family crises
are reduced through better living standards and ‘FI has reduced the level of crime in your area”.
The mean values of this factor fluctuates from 3.36 to 3.79, factor loadings 0.641 to 0.732 and
communalities 0.628 to 0.717, respectively. This factor reveals that the education level of family
members and proper guidance of head of the family help in alleviating poverty and reducing
family crisis by availing proper financial inclusion schemes of cooperative banks.

Reliability
Two factors emerged after scale purification falling within the domain of poverty
alleviation. As clear from Table VII, the Cronbach’s alpha for all 15 scale items underlying
two factors is 0.882 & 0.907, respectively. The α reliability coefficient for F1: Poverty
eradication (0.902) and F2: Poverty eradication through education (0.882) is higher than the
criteria of 0.7 obtained by Gordon and Narayanan (1984), indicating a high internal
consistency. Adequacy and reliability of sample size to yield distinct and reliable factors is
further demonstrated through Kaiser-Meyer-Olkin Measure of Sampling Adequacy that
is 0.721 and all factor loadings are greater than 0.50.

Validity
The two factors obtained alpha reliability higher and equal to 0.50 and satisfactory KMO
value at 0.721, indicating a significant construct validity of the construct (Hair et al., 1995).

Model CMIN/DF GFI AGFI CFI NFI TLI RMSEA

Table VI.
Final model 4.664 0.936 0.912 0.862 0.940 0.931 0.083 Fitness of the
Source: Data analysis structural model

Constructs AVE Composite reliability Cronbach’s α

Table VII.
Poverty alleviation 0.611 0.924 0.894 Reliability & validity
Source: Data analysis of latent constructs
 IJSE CFA
45,5 To assess the fitness, reliability and validity of poverty alleviation dimension using AMOS
16.0, CFA is applied.
EFA on poverty alleviation constructs comprises of two factors with 15 items. Second
order CFA was performed to assess the model fitness. After applying CFA, one item namely,
‘FI through Cooperatives has reduced level of crime in your area’ got deleted as its standard
818 regression weight (SRW) was below the acceptable criteria of 0.50. The remaining 14 items
had regression weight above 0.50. Thus, it become clear that all remaining measured
variables were the significant contributors of the construct. This model had been found to
have a good fit (CMIN/DF ¼ 3.863, RMSEA ¼ 0.079, GFI ¼ 0.928, AGFI ¼ 0.941, CFI ¼ 0.920,
NFI ¼ 0.972 and TLI ¼ 0.922). Convergent validity also got established as AVE arrived at
0.611, composite reliability equals to 0.924 and alpha value 0.894. Thus, the model had been
proved to be valid and reliable. In our study, factor ‘poverty eradication contributes highest
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towards poverty alleviation through Cooperatives, as its regression weight is 0.72 (Figure 1).

p6 e1

p7 e2

0.85 p8 e3
0.59

0.52 p19 e4
e15
0.75
p1 e5
0.66

0.61
PE p11 e6
0.55

0.72 p12 e7
0.53
0.72 p4 e8
0.54
p16 e9
0.69

Poverty p18 e10

p2 e11
0.67 e16

p5 e12
0.53

PETE 0.96
p10 e13
0.77

p13 e14

Notes: PE, Poverty eradication, PETE, Poverty eradication through education, p6, FI has increased
number of electrical devices in your home, p7, You consume more quality food than before, p8,
Your health has improved by having quality food, p19, FI has raised the quality of flooring
material, p1, FI has increased your value of dwelling, p11, Cooperative rural financing programme
has a positive impact on poverty reduction among the poor, p12, Your consumption level has
increased, p4, Poverty reduction has been an important goal of FI, p16, You frequently purchased
basic goods, p18, Your expenditure on luxuries has increased, p2, Your expenditure on clothing
Figure 1. has increased, p5, Most of the members in your family are educated, p10, Household head is
CFA model on the educated enough to guide other members to move on right track, p13, Family crises are reduced
dimension of poverty
alleviation through better living standards and e1-e16 are error terms
Source: Data analysis
 Output from One-way ANOVA and t-test Impact of
To examine the significant mean differences in the perception of beneficiaries regarding financial
poverty alleviation through cooperative banks using different demographic variables, namely, inclusion
age, gender, marital status, occupation, qualification, religion, state, income and purpose of
loan, one-way ANOVA was applied (Table VIII). The results revealed a significant mean
difference in the majority of the variables except for age and purpose of the loan
(Table IX). In order to test the significance of the mean difference between the perceptions of 819
beneficiaries regarding poverty alleviation through cooperative banks on the basis of gender

F1 F2 Overall

Age
20-30 years 3.857 4.122 3.98
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30-40 years 3.808 4.029 3.91

40-50 years 3.878 4.053 3.96
Above 50 years 3.970 4.070 4.02
Occupation
Service 3.742 3.915 3.83
Farmers 4.169 4.189 4.17
Business 3.668 4.039 3.85
Others 3.718 3.037 3.37
Qualification
Under matriculate 3.72 3.90 3.81
Matriculate 3.83 4.04 3.93
10+2 3.91 3.18 3.55
Undergraduate 3.02 4.12 3.57
Graduate 4.21 4.16 4.18
Post graduate and 3.89 3.99 3.94
above
Religion
Hindu 4.250 4.061 4.16
Muslim 3.940 3.821 3.88
Sikh 4.006 4.298 4.15
Others 3.774 3.960 3.86
State
J&K 3.634 3.912 3.77
Punjab 3.978 4.372 4.17
Himachal Pradesh 4.140 3.953 4.04
Income
Up to Rs5,000 3.746 3.897 3.82
Rs5,000-10,000 3.831 4.037 3.94
Rs10,000-20,000 3.955 4.056 4.00
Rs20,000-30,000 3.846 4.085 3.96
Above Rs30,000 3.900 4.181 4.04
Purpose of loan
Agriculture 2.92 4.00 3.77
Dairy farming 2.93 3.66 3.71
Business 3.24 4.20 4.05
Education 2.73 4.00 3.81
Marriage 2.59 4.03 3.81 Table VIII.
Health 2.05 3.98 3.70 Demographic factorial
Others 2.74 3.79 3.72 mean of beneficiaries
Notes: F1, Poverty eradication; F2, Poverty eradication through education regarding poverty
Source: Data analysis alleviation
 IJSE and marital status, independent t-test was applied. The results indicated the existence of an
45,5 insignificant mean difference between male and female respondents (0.746) as well as married
and unmarried respondents (0.642), as the value of p is W0.05 in both the cases. Thus, H2 is
accepted for occupation, qualification, monthly income, state and religion and rejected for age,
gender, marital status and purpose of the loan (Table X).

820 Demographic profile-wise, mean satisfaction regarding poverty reduction

A brief demographic profile sub-categorised into age, occupation, qualification, gender,
state, religion, marital status, monthly income and purpose of loan obtained by beneficiaries
who are contacted during the period of study is as follow.
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Monthly Purpose of
Age Occupation Qualification Religion State income loan
Factors F Sig. F Sig. F Sig. F Sig. F Sig. F Sig. F Sig

F1: Poverty
eradication 1.382 0.248 21.183 0.000 5.016 0.000 35.494 0.000 74.99 0.000 3.052 0.017 2.797 0.007
F2: Poverty
Table IX. eradication
Factor-wise, through
demographic analysis education 2.124 0.096 8.143 0.000 1.133 0.341 15.015 0.000 0.355 0.701 0.063 0.993 1.713 0.103
(anova) for poverty Overall 1.456 0.119 7.330 0.000 1.914 0.015 28.609 0.000 16.67 0.000 0.5371 0.030 0.498 0.836
alleviation Source: Data analysis

Eigen
Factors Mean SD FL V.E values Communalities α

Factor 1: Poverty reduction 3.95 30.533 3.648 0.907

FI has increased the number of electrical devices
in your home 3.49 0.745 0.761 0.596
You consume more quality food than before 3.83 0.706 0.721 0.582
Your health has improved by having quality food 4.07 0.802 0.627 0.560
FI has raised the quality of flooring material 4.05 0.683 0.519 0.625
FI has increased your value of dwelling 4.25 0.655 0.815 0.737
Cooperative rural financing programme has a
positive impact on poverty reduction among
the poor 4.26 0.680 0.743 0.739
Your consumption level has increased 3.66 0.603 0.671 0.522
Poverty reduction has been an important goal of FI 4.28 0.626 0.774 0.693
You frequently purchased basic goods 4.29 0.658 0.744 0.575
Your expenditure on luxuries has increased 4.01 0.489 0.698 0.758
Your expenditure on clothing has increased 3.26 0.652 0.710 0.569
Factor 2: Poverty reduction through education 3.56 34.030 2.141 0.628 0.882
Most of the members in your family are
educated 3.70 0.737 0.649 0.717
House head is educated enough to guide other
members to move on right track 3.36 0.968 0.641 0.696
Family crises are reduced through better living
Table X.
Output from factor standards 3.79 0.966 0.732 0.647
analysis on the FI has reduced the level of crime in your area 3.39 0.843 0.715
dimension of poverty Total variance explained 64.563
alleviation Source: Data analysis
 Age-wise analysis depicts that age is sub-grouped into four groups, i.e., 20-30 years, Impact of
30-40 years, 40-50 years and above 50 years. ANOVA results showed that beneficiaries who financial
are above 50 years of age are more satisfied with the poverty alleviation schemes of inclusion
cooperative banks as they have accorded highest mean score, i.e., 4.02, followed by respondents
in the age group of 20-30 years (3.98), 40-50 years (3.96) and 30-40 years (3.91). Occupation-wise
analysis depicts that beneficiaries who are farmers are more satisfied with the poverty
alleviation schemes of cooperative banks as they have accorded highest mean score, i.e., 4.17 821
followed by businessman (3.85), service man (3.83) and others (3.37). As far as qualification is
concerned, ANOVA results show that the beneficiaries who are graduate and postgraduate are
more satisfied with the poverty alleviation schemes of cooperative banks as they have
accorded highest mean score i.e., 4.18 and 3.94, respectively, followed by matriculate (3.93),
under matriculate (3.81), undergraduate (3.579) and 10+2 (3.55). With regard to religion, the
ANOVA results indicate that beneficiaries who are Hindu believe that the financial inclusion
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through cooperative banks helps them in eradicating poverty as they have accorded highest
mean score, i.e., 4.16 followed by Sikh 4.15, Muslim 3.88 and Others 3.86. Income-wise analysis
depicts that the beneficiaries who are above Rs30,000 and those who are in the income group of
Rs10,000-20,000 are more satisfied as they have accorded highest mean score, i.e., 4.04 and
4.005, respectively, followed by beneficiaries in the income group of Rs20,000-30,000 (3.96),
Rs5,000-10,000 (3.94) and up to Rs5,000 (3.82) with regard to poverty alleviation through
cooperative banks. The state-wise analysis reveals that respondents belonging to the state of
Punjab (4.17) are more satisfied with regard to poverty alleviation through cooperative banks
followed by beneficiaries from HP (4.04) and J&K (3.775). As far as purpose of loan is
concerned, it is found that beneficiaries who have obtained loan for business are more satisfied
with the poverty alleviation schemes of cooperative banks as they have accorded highest mean
score (4.05) followed by those who have obtained loan for education and marriage (3.81),
agriculture (3.77), others (3.72) and dairy farming (3.71) Table VIII.

Relationship between financial inclusion and poverty reduction through

cooperatives
Figure 2 highlights the relationship between financial inclusion and poverty reduction.
The results indicate that model fits the data excellently (CMIN/DF ¼ 4.664, GFI ¼ 0.936,

e9 e10 e11 e12 e13 e14 e15 e16 e17 e18 e19

p6 p7 p8 p19 p1 p11 p12 p4 p16 p2

p18

0.68 0.51 0.73 0.58 0.67 0.64 0.53

0.79 0.57 0.69 0.63

e5 Access
PE

p5 e6
0.87 0.73 e20
e4 Availability e21
e22 0.65
0.91

0.77 0.94 0.61 0.54

e3 Usage Financial Inclusion Poverty PETE p10 e7
0.93 0.72
e2 Quality 0.74 p13 e8

e1 Impact
Figure 2.
SEM model for
poverty reduction
Source: Data analysis
 IJSE AGFI ¼ 0.912, CFI ¼ 0.862, NFI ¼ 0.940, TLI ¼ 0.931 and RMSEA ¼ 0.083, Table VI). SEM
45,5 result reveals that financial inclusion has a positive and significant relation with poverty
reduction ( β ¼ 0.94, p ¼ 0.000).
Therefore, H1 stands accepted. The findings are somewhat consistent with those of Vindhya
(2016) and Nalini and Mariappan (2012), who support the notion that financial inclusion is an
effective way for combating poverty which leads to several benefits such as overcoming the
822 problem of poverty, unemployment, inequality and deteriorating welfare. Another study by
Vinit (2014) and Nirmala and Yepthomi (2014) highlights that access to basic financial services,
such as savings, loans, insurance, credit, etc., through financial inclusion has generated a
positive impact on the lives of the poor and help them to come out of the clutches of poverty.

Conclusion and strategic implications

On the basis of the aforesaid analysis, the major findings of the study are as under:
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(1) It was found that beneficiaries belonging to the state of J&K were less satisfied with
the poverty alleviation schemes of cooperative banks as they have accorded lowest
mean score compared to beneficiaries belonging to the State of Punjab and HP. The
lack of awareness among people concerning the significance of financial products and
services, inappropriate credit terms and administration, distance from bank branches,
cumbersome account opening norms were found to be the most compelling factors.
(2) Beneficiaries having a monthly income up to Rs5,000 responded low with regard to
poverty alleviation schemes of cooperative banks, which indicated that households
with lower income did not qualify for cooperative banking services. Hence, it can be
concluded that cooperative banks failed to cater the financial requirements of varied
income groups.
(3) Female beneficiaries responded low with regard to poverty alleviation schemes of
cooperative banks. Unsuitable financial products and services and lack of regular
and substantial income were found to be the root cause of financial exclusion. Thus,
it can be concluded that cooperative banks failed to design pro-women schemes to
bring women in the formal banking system.
(4) It was also found that beneficiaries with lower qualification responded low with
regard to poverty alleviation schemes, which indicated that they were not fully
aware of the benefits of financial inclusion schemes offered by cooperative banks
and having no or very little knowledge about banking products and services.
(5) Significant relationship was observed between financial inclusion and poverty
alleviation through cooperative banks ( β ¼ 0.94, p ¼ 0.000), which leads to the
conclusion that financial inclusion is an effective way for combating poverty,
unemployment and inequality.
(6) The efficiency of employees of cooperative banks was found below than that of
commercial bank employees due to defective recruitment policy and absence of
quality training. In most of the cases, the personnel appointed were drawn from the
lower level, often sacrificing competitiveness in quality.
(7) It was also observed that unemployment, inadequate financial resources and poor
health condition had become a major constraint for the rural households to work
hard and earn adequate amount to continue their day-to-day living.
In order to alleviate poverty through cooperative banks, the following suggestions are offered:
(1) It was found that beneficiaries belonging to the state of J&K were less satisfied with
the poverty alleviation schemes of cooperative banks as compared to beneficiaries
 belonging to the state of Punjab and HP. In order to bring beneficiaries of J&K at par Impact of
with the beneficiaries of Punjab and HP, it is suggested that cooperative banks in financial
J&K should relax KYC norms, open branches in unbanked rural areas and provide inclusion
access to various financial products and services like bank account, immediate
credit, saving products, remittances and payments services, mortgage, financial
advisory services and entrepreneurial credit so as to improve banking penetration
and financial inclusion rapidly. 823
(2) It was found that beneficiaries having a monthly income up to Rs5,000 were less
satisfied with regard to poverty alleviation schemes of cooperative banks. In order to
deal with poverty, it is suggested that cooperative banks should improve financial
inclusion in rural areas through different financial services like low-cost loans to
lower income households and provide micro insurance with the bank account so that
the willingness of the people to use bank services may increase.
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(3) During the survey, it was found that beneficiaries with lower qualifications were
having no or very little knowledge about banking products and services.
The cooperative banks should provide financial education to diverse target groups
including school and college students, farmers, women, rural and urban poor,
pensioners and other citizens for disseminating information about various financial
products and services to enable them to make financial decisions.
(4) The cooperative banks must be encouraged to take up “micro credit” in a big way so
that it may work in the rural informal economy for the rural poor. In this way,
the cooperative banks will be able to work as “special purpose vehicle” for micro
finance for reducing poverty and helping the rural informal economy to grow, which
will ultimately lead to poverty reduction.
(5) Cooperative banks should recruit young, energetic graduates with an excellent
academic background and possessing knowledge about the banking policies and
programmes to serve the rural sector.
(6) The procedure for sanction of loans from the cooperative banks for self-employment
projects should be simplified.
(7) Livestock breeding and animal husbandry can make a significant contribution in
generating employment in the rural areas and eradicating poverty. It is suggested that
the cooperative bank should provide financial assistance to unemployed educated
youth for the establishment of dairy and poultry units with the co-operation of the
concerned department.
(8) There should be opportunities for earning for the people who are engaged in
cultivation activities in the rural areas at a time when the agriculture operation is at a
lean level. It is suggested that cooperative bank should encourage cottage industry
like furniture manufacturing, matchstick making, spinning and rope making, etc.,
which can make a noteworthy contribution to wipe out unemployment and poverty.

Limitations of the study

Since all possible efforts are made to make the study valid and comprehensive, yet certain
limitations could not be ruled out and are required to keep in mind whenever its findings are
considered for implementation. These limitations are as under:
• The in-depth analysis of the study is restricted to three northern states only because
of limited resources and time availability. Comparison of financial inclusion by
cooperative banks in other states of the country could be undertaken in future.
 IJSE • The study is limited to the perception of financial inclusion beneficiaries only, which
45,5 in future could be carried further on the perception of other stakeholders such as
bank officials, business correspondents, village panchayats, etc.
• Comparative study of beneficiaries who are covered under the financial inclusion
drive and those who are excluded from the financial inclusion has not been done, and
thus could be undertaken in future.
824 • Though every care has been used to be objective in collecting and interpreting the
data, yet the possibility of subjective interpretation in some cases cannot be ruled out.

Conclusion
The present study aims at investigating the impact of financial inclusion on poverty
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alleviation through cooperative banks. The study is both evocative and evaluative in nature.
In order to fulfil the objectives of the study, both primary and secondary data were collected.
The primary data were collected from 540 customers of cooperative banks operating in
three northern states of India, i.e., J&K, HP and Punjab. Secondary data were collected from
various published sources concerning financial inclusion through cooperative banks, i.e.,
books, journals, files, cooperative bulletins, organisational reports, Annual Draughts of
Planning and Statistical Department (Government of J&K, HP and Punjab), RBI reports,
magazines and internet. To examine the impact of financial inclusion on poverty alleviation
through cooperative banks various statistical tools like EFA, CFA, SEM, one-way ANOVA
and independent sample t-test were applied. The analysis of the study revealed that
beneficiaries belonging to the State of J&K were less satisfied with the poverty alleviation
schemes of cooperative banks as they have accorded lowest mean score compared to
beneficiaries belonging to the State of Punjab and HP. The lack of awareness among people
concerning the significance of financial products and services, inappropriate credit terms
and administration, distance from bank branches, cumbersome account opening norms
were found to be the most compelling factors. Income-wise analysis showed that
beneficiaries having a monthly income up to Rs5,000 responded low with regard to poverty
alleviation schemes of cooperative banks, which indicated that households with lower
income did not qualify for cooperative banking services. Gender-wise analysis revealed that
female beneficiaries responded low with regard to poverty alleviation schemes of
cooperative banks. Unsuitable financial products and services and lack of regular and
substantial income were found to be the root cause of financial exclusion. It was also found
that beneficiaries with lower qualification responded low with regard to poverty alleviation
schemes, which indicated that they were not fully aware of the benefits of financial inclusion
schemes offered by cooperative banks and having no or very little knowledge about
banking products and services. The efficiency of employees of cooperative banks was found
below than that of commercial bank employees due to defective recruitment policy and
absence of quality training. In most of the cases, the personnel appointed were drawn from
the lower level, often sacrificing competitiveness in quality. It was also observed that
unemployment, inadequate financial resources and poor health condition had become a
major constraint for the rural households to work hard and earn adequate amount to
continue their day-to-day living. A significant relationship was observed between financial
inclusion and poverty alleviation through cooperative banks ( β ¼ 0.94, p ¼ 0.000), which
leads to the conclusion that financial inclusion is an effective way for combating poverty,
unemployment and inequality. Financial inclusion is imperative for the comprehensive
growth of the country. Inclusive growth largely depends upon the equitable distribution of
growth opportunities and benefits and financial inclusion is one of the opportunities which
need to be equally distributed in order to attain inclusive growth. Ever since the beginning,
 the cooperative banks have been playing an imperative role in the socio-economic Impact of
development of the country by making available institutional credit at a reasonable cost, financial
particularly in the rural areas, but the accessibility of financial services to a common man inclusion
still remains a dream for many rural people. In order to achieve inclusive growth and
alleviate poverty from the gross root level, cooperative banks must realise the importance of
financial inclusion and should provide access to various financial products and services like
bank account, immediate credit, saving products, remittances and payments services, 825
mortgage, financial advisory services, entrepreneurial credit to lower income households
and micro insurance with the bank account so as to improve banking penetration and
financial inclusion rapidly. They must provide financial assistance to unemployed educated
youth for the establishment of dairy and poultry units, cottage industry like furniture
manufacturing, matchstick making, spinning and rope making, etc., which can make a
noteworthy contribution to wipe out unemployment and poverty.
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The study makes a contribution towards financial inclusion literature relating to poverty
alleviation and fulfils the research gap to some extent by assessing the impact of financial
inclusion on poverty alleviation through cooperative banks. This paper can help the
policymakers and other stakeholders of cooperative banks in promoting banking habits
among poor rural households both at the national and international level.

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Further reading
Beck, T., Demirgüç-Kunt, A. and Martinez Peria, M.S. (2008), “Banking services for everyone? Barriers
to bank access and use around the world”, The World Bank Economic Review, Vol. 22 No. 3,
pp. 397-430.
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Sameer, K. (2009), Speeding Financial Inclusion, Academic Foundation, New Delhi.
Sarma, M. (2008), “Index of financial inclusion”, Working Paper No. 215 of Indian Council for Research
on International Economic Relations, New Delhi.
Sen, A. (2000), Development as Freedom, Anchor Books, New York, NY.
Singh, A.B. and Tandon, P. (2012), “Financial inclusion in India: an analysis”, International Journal of
Marketing, Financial Services & Management Research, Vol. 1 No. 6, pp. 41-54.

Corresponding author
Tarsem Lal can be contacted at: tarsemju@gmail.com

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