Impact of Financial Inclusion in the Development of MFI and SHG: A Case Study of Allahabad District by F Abubecker

International Journal of Advanced Science and Technology Vol. 28, No. 7, (2019), pp. 180-191

Impact of Financial Inclusion in the Development of MFI and SHG: A Case Study of Allahabad District F.Abubecker Dept. Management Studies BS. Abdurrahman Crescent Institute of Science & Technology Chennai Dr. Khalid Waheed Assistant Professor, Department of management studies, BS Abdurrahaman Crescent Institute of Science and Technology, Chennai Dr. AbuzarNomani Assistant Professor, Department of management studies, BS Abdurrahaman Crescent Institute of Science and Technology, Chennai Taha Salman Research Scholar, SIATS Allahabad, UP

Abstract Access to financial facilities has been familiar as a main facet of growth and more importance is given to prolonging financial services to poverty families as the lack of education and awareness desired to recognize financial facilities that are obtainable to them. The lack of fiscal access confines the range of facilities and credits for domestic and enterprises. Although there is some indication that approaches is refining but still there are several issues which have influenced the access to financial facilities. Some investigation are completed on the financial inclusion with selected microfinance, Islamic microfinance studies, progress of financial inclusion. A limited studies has been analysed the influence of financial inclusion of Indian through the development of MFIâ&#x20AC;&#x;s and SHGâ&#x20AC;&#x;s. With this backdrop, this study is an effort to find the status of financial inclusion among the Muslim minorities of Eastern Uttarpradesh. the study deals with a limited number of households and focused on the socio- demographic details, occupational and vocational status, profile of income, expenditure, accessibility of financial inclusion, pros and cons of Islamic microfinance, pros and cons of government bank and perception toward Islamic microfinance among the Muslim population in Allahabad city. Keywords: - interest free microfinance, conventional microfinance, poverty alleviation, global experiments, Women Empowerment, Capacity Building, Skill Development 180 ISSN: 2005-4238 IJAST Copyright @ 2019 SERSC

International Journal of Advanced Science and Technology Vol. 28, No. 7, (2019), pp. 180-191

Introduction “Financial inclusion is the procedure of assuring access to suitable financial products and facilities desired by all sectors of society with suspected groups such as weaker segments and poverty groups at an reasonable cost in a fair and obvious manner by typical institutional performers” (Chakrabarty, 2013). The purpose of Financial Inclusion (FI) is to create easy approach of financial facilities to the large deprived residents of the nation. It is an effort for attaining inclusive development of the general public by making accessibility of finance to the destitute section of inhabitants. In order to obtain the assistances of the financial facilities, lot of actions has been taken by Indian Government in the favour of poor and deserted sector of the people. Access to financial facilities has been familiar as main facet of growth and more importance is given to prolonging financial services to poverty families as the lack of education and awareness desired to recognize financial facilities that are obtainable to them. The lack of fiscal access confines the range of facilities and credits for domestic and enterprises. Although there is some indication that approaches is refining but still there are several issues which have influenced the access to financial facilities. Some investigation are completed on the financial inclusion with selected microfinance, Islamic microfinance studies, progress of financial inclusion. A limited studies has been analysed the influence of financial inclusion of Indian through the development of MFI‟s and SHG‟s. With this backdrop, this study is an effort to find the status of financial inclusion among the Muslim minorities of Eastern Uttar Pradesh. This study was undertaken to address the research questions related to the socio-demographic status of Muslims in India. The economic status by estimating of income and expenditure for each family among the Muslim minorities. Relationship between the Socio - demographic variables and vocational status of Muslim minorities. Difficulties and constraints in procuring financial services among the Muslim minorities. Government banks and Islamic microfinance in financial inclusion among the Muslim minorities. Elements that motivate and influence the 181 ISSN: 2005-4238 IJAST Copyright @ 2019 SERSC

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attitude of the respondents towards different financial options among the Muslim minorities. Suitable remedial measure for economic improvement and financial inclusion. Objectives 1. To study the socio-demographic and vocational status of Muslim minorities. 2. To find economic status by estimating of income and expenditure for each family 3. To find the difficulties and constraints in procuring financial services. 4. To analysis the role of government banks and Islamic microfinance in financial inclusion. 5. To find the attitude of Muslim minority towards different financial options. 6. To suggest the suitable remedial measure for economic improvement and financial inclusion. Literature review Adams and Von Pischke (1992) argued that informal financial bases such as currency lenders, traders, relatives and friends were likely to be more cost efficient than developmental financial institutions. Baydas (1997) explains that micro finance has a diverse culture from that of classic banking practices, leading to a parting rather than an integration of micro finance active within banking administrations. With reference to the facility of bank loans to groups of poor clienteles. Baydas (1997); Hackman & Oldham (1976); Everett &Savara, (1991); (Furnham, 1997) report that Bank staff are usually male, and physically, economically, and socially distant from poorer people. Financial aid for the poor can be considered at the corporate level as a second-class activity within an obstructive organizational culture. Bank staff refuse visits to Indian slums, have difficulty to gain information about clienteles, and experience uncertainties in bank goals. Such role uncertainties may add to low satisfaction and high stress and impose on facets of motivation. Harper (2000) described how staff approaches discouraged entry into new markets and made it needed for NGOs to act as intermediaries between clienteles and banks. Hulme and Mosley (1996) argument about the claim that informal sources of credit offer a cheaper and more efficient service than development financial institutions on the source that it lacks statistical evidence. 182 ISSN: 2005-4238 IJAST Copyright @ 2019 SERSC

International Journal of Advanced Science and Technology Vol. 28, No. 7, (2019), pp. 180-191

Gerrard and Cunningham (1997) Islamic Banking is a banking function accepted based on the principles placed out in Shariah i.e. the laws of Islamic jurisprudence. Since Muslims cannot obtain or pay attention, they are not capable to conduct business with conventional banks.

Research Gap Muslim community in India is the economically not sound reported by Sachar committee (SCR, 2006). Muslims are the poorest religion as compared to other religion in the urban India with 15 percent higher than the Hindus (John and Mutatkar, 2005) (NSSO, 1990) (NSSO, 1998). Only 8 percent of the Muslim population holding a saving account, it clearly shows that there is a huge gap between Muslim community and rest of the country. Based on the Shariaâ&#x20AC;&#x;s ruling the use of Riba is banned in Islamic banking with prevents muslim to conduct business with conventional banks (Gerrard & Cunningham, 1997). According to Raghuram Rajan committee reports, this lagging in accessibility of banking sector by Muslim community due to non-availability of Islamic banking (interest free banking mechanism). It is the most significant to ensure the participation of excluded population of the country like Muslim community in the economic development by establishing the Islamic banks and it became the prime responsibility of the secular government like India. Islamic banking is not exclusively for the Muslim community but also to serve for all community (Masiukiewicz, 2014) (Sole, M. J. 2007) ResearchMethodology An exploratory research has been conducted based on survey method.An Interpretative, descriptive and analytical methodology has been applied, for the primary & secondary data are collected and utilized for the study. The secondary data sources mainly collected and used from facts of RBI, Ministry of Finance, Census of India, Government of India, and Informations on trend &growth of banking in India, Newspapers, Research Journals, Research Articles, E-Journals, Books and Magazines. Similarly variouswebsites were used like RBI, Ministry of Finance, and Government of India. The data for this study were obtained through a survey questionnaire, which wasdesigned keeping in notice the research objectives drawnformerly. Self-administered questionnaire was used as an instrument for primary data collection. 183 ISSN: 2005-4238 IJAST Copyright @ 2019 SERSC

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A trial study was initially piloted at Allahabad city with 50 samples during April 2018 to test the trust worthiness of the questionnaire. Parameters were desirable to achieve the full-fledgedstudy. So as to give opportunity for the wide-rangingattainfor the period of the main survey, the questionnaire was reserved as it is. Initially the questionnaire was framed based from the literature and guidance received from representatives of financial inclusion and microfinance. Later on modifications were done in the initial questionnaire and complete questionnaire was organized for the survey.The questionnaire was planned with eight sections consist of 33 main questions with categorical, ordinal data and 12 sub questions with five â&#x20AC;&#x201C; point Likertâ&#x20AC;&#x;s scale, ranging from â&#x20AC;&#x17E;Strongly Agreeâ&#x20AC;&#x; to â&#x20AC;&#x17E;Strongly Disagreeâ&#x20AC;&#x; for this sections. This study consists of nominal, categorical, and ordinal data. For the proposed research the alpha level of 0.05, and the level of acceptable error at 5 per cent are considered as generally suggested by (Kotrlik& Higgins, 2001). The estimated SD of the scale is 0.5. Cochranâ&#x20AC;&#x;s formula is: Sample Size (n) = n=

(đ?&#x2018;Ą)2 (đ?&#x2018;?)2 (đ?&#x2018;&#x17E;)2 (đ?&#x2018;&#x2018;)2

(1.96)2 (0.5)2 (0.5)2 (0.05)2

= 384

Where 1.96 gives the t-value for a selected value of the alpha level of 0.025 in each tail. The alpha level of 0.05 shows the level of risk that the true margin of error may surpass the permissible margin of error. Keeping in view the entireresidents of theAllahabad city of Uttar Pradesh as per the 2011 Census, in order to increase the reliability of the study the sample size has been enhanced to eight hundred and ten. In order to achieve the objectives mentioned in this research, the following tools and techniques were used with SPSS version 20. Analysis The variables are collected and analyzed using Mann Whitney U test, Sapirowilk test is conducted to check the normality of the data, Factor analysis has conducted to find the latent variables and Kruskal Wallis test has been conducted to find target characteristics towards Islamic Microfinance (IMF) and conventional banks. Latent variables from the factor analysis are further rigorous analyzed by Mann Whitney U Test and Kruskal Wallis test to find the

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difference between the group of variables to the latent variables. The data is relating to eight hundred and ten samples of minority Muslim residing in the Allahabad U.P . Table 1.Cross tabulation of Education with Occupational variables Characteristics

Occupation

Vocational type

Category Employed in Private sector Employed in Government sector Business Unemployed Housewife Total None Beedi rolling Tailoring Driving artisans Cooks Priest Domestic workers Ironsmith Security guards Food catering Building and construction workers Merchants Weavers Scavenger Barbers Vegetable Furniture

Education SSLC/ Graduatio Diploma HSC n

Illitera te

1st to 8th std

225

18 4 85 140 89 6 9 5 1 1 0

42 8 164 308 170 7 20 13 0 10 4

54 16 95 241 111 4 24 17 4 4 2

21 18 21 106 39 2 24 4 1 6 1

4 1 3 15 4 0 0 0 0 1 0

139 47 368 810 413 19 77 39 6 22 7

3 1 0 2 1 0

6 2 0 0 6 0

13 1 1 1 5 2

5 0 0 0 2 0

1 0 0 0 0 0

28 4 1 3 14 2

Total

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Chi-square

Ď&#x2021;2 (df = 16, N = 810) = 101.003 p = 0.000

Ď&#x2021;2 (df = 136, N = 810) = 282.567 p = 0.000

International Journal of Advanced Science and Technology Vol. 28, No. 7, (2019), pp. 180-191

Skills

Employment status

making Jewelry making Confectionery Candle making Carpentry Welding Plumping Repairs of electric household appliances repair for two wheeler fruit sellers Sticker shop Dress shops Repair of four wheeler Lorry driver Lorry cleaner Cinema hall Beauty parlor Others Total Skilled worker Unskilled worker Total Full employment Part time

Seasonal Employment Total Average Monthly < 10000 Income 10000 –

0 1 0

7 1 6

0 0 0

0 0 1

0 1 0

7 3 7

0 0 1

3 0 7

0 1 5

0 0 3

0 0 0

3 1 16

5 1 0 0 0 140 128

12 0 7 1 2 308 279

7 2 2 0 0 241 211

4 1 0 0 2 106 91

1 0 0 0 0 15 15

29 4 9 1 4 810 724

140

308

241

106

810

139

146

413

178

χ2 (df = 8, N = 810) = 74.982 p = 0.000

120 61 79

214 140 148

179 44 160

82 32 54

15 3 10

610 280 451

χ2 (df = 12, N = 810) =

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χ2 (df = 4, N = 810) = 5.114 p = 0.159

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20000 20001 â&#x20AC;&#x201C; 30000 > 30000 Total

0 140

8 308

10 241

7 106

0 15

25 810

79.305 p = 0.000

Source: Compiled by Author Implications The test results indicates that Occupation, vocational type, employment status and average monthly income are statistically significant with p value of less than alpha value whereas skill of the respondents are not statistically significant with the education which means skill of the respondents are not dependent on the education of the respondents this is due to more than 50 percent of the samples are studied less than SSLC/HSC. Maximum respondents studied 1 std to 8 std in a government sector. Even though they are working in government sector that might be low grade job due to low education. Despite graduates 42 respondents working in the private sector and 21 respondents doing their own business. 18 graduates remain unemployed due to non-availability of job. Above 21 female graduates remain house wife due to maintain their family. 2 and 4 graduates having a job like beedi rolling and driving respectively. 128 respondents are skilled though they are illiterate whereas only 91 are skilled with graduation. Above 600 respondents are skilled though their education is lesser than SSLC/HSC. 65 graduates and 15 graduates doing full time and part time job respectively. 32 graduates and 7 graduates are getting average monthly salary of less than 10000 rupees and more than 30000 rupees respectively. No illiterate getting a average monthly salary of above 20000 rupees. Out of the total respondents who are getting average monthly income of less than 10000 rupees 87 percent of the respondents are educated lesser than SSLC/HSC.

Findings Majority of the samples are females which support to study not only Muslim minority but also the status of muslim females in financial inclusion. In this study, 45 percent are housewife whereas 49 percent of the samples working in the unorganized sector. Most of the respondents in the study are having salary as their source of income followed by self-employment with more 187 ISSN: 2005-4238 IJAST Copyright @ 2019 SERSC

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than 80 percent of the samples getting less than 20000 rupees of monthly income. Majority of the married respondents are skilled worker, working in private sector on a full time in the age group of 31 to 40 years with average monthly earning of less than 20000 which indicates that most of the samples are economically poor. Despite graduate majority of the respondents are working in private unorganized sector Regarding the source of borrowing, most of the samples preferred a loan from government banks followed by IMF and relatives. They prefer less to get money against gold, from pawn brokers, by selling items or property and other sources. The respondents prefer to save money in the private banks, invest in plot or jewelry and government banks but the prefer less to save in IMF. For the acquiring loan they prefer private bank followed by money lender and government banks but the prefer less to get loan from IMF. Minority Muslim in Allahabad are better knowing of Islamic banking system (Gerrard and Cunningham, 1997) even though it is not established in Allahabad. Despite 98 percent of the samples having saving bank account in their Government banks most of them facing difficult like lack of information, bribe etc in getting loan or other financial services this leads to poverty and lack in accessing growth opportunities (McKay, 2008; Mendoza and Thelen, 2008; Ianchovichina and Lundstrom, 2009). Most of the cases there is no difference of opinion among the groups on the reason of not getting loan from IMF even though they have a difference that is not large. All the groups have same opinion that IMF is in long distance which is the responsible for not getting loan from IMF. Another major reason that becomes responsible causes for not getting loan from IMF is they are not getting sufficient amount that is required by them at the time of need. Bribe is also another reason of not getting loan from IMF. Followed by that so many documents required and more time taken for the sanction of loan are one of the reason for not getting loan from IMF. Reasons like lack of information is not significant difference in gender, family type and respondents hold account in government banks but there is difference among the skilled and unskilled workers. Perception of So many documents required become the reason for not getting loan from government banks is not significantly difference between group of family type, employment status and holding account in government banks except gender that too not much difference. There is no difference between the groups (family type, employment status and holding account in government banks) on the perception of more time taken for not getting loan 188 ISSN: 2005-4238 IJAST Copyright @ 2019 SERSC

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from government banks except gender that too not with minimum difference. Bribe is the reason for not getting loan has no difference of opinion among the group of gender and family type whereas there has difference among the group of employment status and holding account in banks with minimum difference. Gender has difference of opinion on the long distance, absence in my locality and lack of identity (ration card) for the reasons of not getting loan from government banks. But difference of opinion among the gender on rude behavior, Lack of identity (Aadhar card) and Lack of identity card (voter card). Joint family and nuclear family has difference of opinion on the reasons like getting not sufficient amount and absence in my locality with minimum difference. But these groups has no difference of opinion on the reasons like rude behavior, long distance, lack of identity (Ration card), lack of identity (Aadhar card), lack of identity (voter card) and others for not getting loan from government banks. Skilled and unskilled worker has no difference of opinion on the reasons like not getting sufficient amount, rude behavior, long distance, lack of identity (Ration card), lack of identity (Aadhar card) and others whereas there has difference of opinion on the reasons like absence in my locality and lack of identity (voter card) for not getting loan from government banks. Those who hold account in government banks and who not hold any account in government banks has no difference of opinion on the reason like getting not sufficient amount, rude behavior, long distance, absence in my locality, lack of identity (Ration card), lack of identity (voter card), lack of identity (Aadhar card) and other for not getting loan from government banks. Factor analysis demarcated three factors based on the perception of Islamic microfinance among the respondents. Muslim people in Allahabad very much know about the real benefits and its positivity of the Islamic microfinance institution. They also know the significant role in increase in the economic status of the people. The perception of the benefits of Islamic microfinance is difference among the group of family status, marital status and educational groups whereas perception of the positivity of Islamic microfinance institution is different among the group of family status, marital status and education.

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The perception of the role of Islamic microfinance institution towards the economic status of the people is difference among gender, family status, skill of the respondents, marital status, education and age.

Conclusion It can be concluding that the socio economic status of the Muslims in Allahabad is vulnerable to poverty and they are struggling to run the day to day life. The study also confirms the Sachar committee reports that they are educational as well as economically weak out of that female Muslims are more vulnerable. They are working the unorganized sector in the private as well as government due to economic and educational lacking. Most of them prefer doing business but religious belief restricts them to approach conventional banks. Despite there is establishment of Islamic microfinance institution, they face difficult in getting loan from IMF. They prefer less in saving as well as getting loan from IMF because the IMF are not formal and organized in Allahabad. It also concludes that they aware about the benefits and positivity of Islamic microfinance institution.

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