Impact of Financial Inclusion on the Socio-Economic Status of Rural and Urban Households of Vulnerable Sections in Karnataka

Abstract: Financial inclusion and inclusive growth are the buzzwords today. Inclusive growth empowers people belonging to vulnerable sections. This in turn depends upon a variety of factors, the most important being financial inclusion, which plays a strategic role in promoting inclusive growth and helps in reducing poverty by providing regular and reliable sources of finance to the vulnerable sections. In this direction, the Government of India in its drive for financial inclusion has taken several measures to increase the access to and availing of formal financial services by unbanked households. The purpose of this paper is to assess the nature and extent of financial inclusion and its impact on the socio-economic status of households belonging to vulnerable sections focusing on inclusive growth. This has been analyzed with the theoretical background on financial access and economic growth, and by analyzing the primary data collected from the Revenue Divisions of Karnataka. The results show that there is a disparity in nature and extent of financial inclusion. Access to, availing of formal banking services pave the way to positive changes in the socio-economic status of households belonging to vulnerable sections which are correlated, leading to inclusive growth based on which the paper proposes a model to make the financial system more inclusive and pro-poor.