Journal of Economic Policy & Research

ISSN 0975-8577 Volume 13, No 2, April-September 2018  pp. 2-16

Financial Inclusion and its Determinants:

The Case of Goa
Meenakshi Bawa1
P. K. Sudarsan2

Abstract
The aim of the paper is to examine the extent of financial inclusion in Goa through
an in- depth analysis of the access and usage of banking services across the talukas
in Goa for the period from 1994-95 to 2014-15. The study is based on the data
collected from the Directorate of Planning, Statistics and Evaluation, Government
of Goa. By using an Index of Financial Inclusion, the study classifies all talukas in
Goa into high, medium and low categories, with respect to financial inclusion. In
order to understand the factors affecting financial inclusion, a multiple regression
model is developed and estimated following the method of ordinary least squares.
The results show that the spread of the commercial banking network is not evenly
distributed across talukas in Goa. It is observed from the study that although
there has been an improvement in outreach activity in the banking sector, the
achievement is not significant.The findings also indicate that regions characterized
by low levels of education, lower degree of urbanization and lower levels of tourist
arrivals seem to be less financially inclusive. In other words, regions that are less
developed are also less financially inclusive. The results of the regression analysis
show that the three independent variables, namely, urbanization, school enrolment
and tourist arrivals, are found to have a positive impact on financial inclusion
and are statistically significant. The findings of this study have policy implications
for initiating measures that would enhance the levels of financial inclusion in all
regions, especially the less developed ones.

Keywords: Financial Inclusion, Index of Financial Inclusion, Access Dimension,

Usage Dimension

Introduction
After liberation in 1961, the state of Goa has been brought into the mainstream
of national economic development. Within a span of five decades, Goa has
made significant progress in both economic and social fields. The benefits of
development are, however, not evenly distributed over the entire state. The state
of Goa is divided into two districts, namely, North Goa (comprising of the six

1 Associate Professor, Economics, M.E.S. College of Arts and Commerce (affiliated to Goa
University) Goa and can be reached at [email protected]
2 Professor, Economics, Goa University and can be reached at [email protected]

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Financial Inclusion and its Determinants:The Case of Goa

talukas of Tiswadi, Bardez, Pernem, Bicholim, Sattari and Ponda) and South Goa
(comprising of the five talukas of Sanguem, Canacona, Quepem, Salcete and
Mormugao).
Goa has an excellent network of banks and banking facilities. Goa has a
presence of almost all public sector and new generation commercial and private
sector banks. The State Bank of India with a network of 52 branches in North Goa
District and 28 branches in South Goa District is the Lead Bank in the state. Over
the years, there has been a phenomenal growth of banking facilities in Goa. There
is a scheduled commercial bank for every 3014 people in Goa, as against the all-
India average of 9963 people (RBI 2015).The State Level Bankers’ Committee
(SLBC) had identified both districts of Goa for 100% financial inclusion. It has
been claimed that all banks in North Goa and South Goa districts have already
achieved 100% financial inclusion by the end of March 2008 (NABARD 2011a;
2011b).
Financial inclusion is defined,for the purpose of this study, as the process that
ensures the ease of access and usage of the formal financial system for all members
of an economy. This definition emphasizes two dimensions of financial inclusion,
namely, access and usage of the financial system. Further, banking inclusion is
considered as analogous to financial inclusion. This study refers exclusively to
commercial and cooperative banks functioning in the state of Goa for the simple
reason that the banking sector intermediates most of the funds in the economy.
In the present study, an attempt is made to examine the extent of financial
inclusion across the talukas in Goa for the period from 1994-95 to 2014-15.
Specifically, the study aims at (i) analyzing the trends in the access to and usage of
banking services across the talukas in Goa; (ii) measuring the degree of financial
inclusion by using a composite index of financial inclusion; and (iii) identifying
the factors affecting financial inclusion.
To begin with, it describes the Index of Financial Inclusion (IFI). The next
section provides an overview of the access and usage of banking services in Goa.
This is followed by an analysis of the degree of financial inclusion across the
talukas in Goa and the factors determining financial inclusion. The final section
concludes the paper.

Theoretical and Methodological Framework

Several indicators have been used to measure the extent of financial inclusion.
Earlier studies on financial inclusion have used individual indicators separately to
assess the extent of financial inclusion. Beck et al., (2007) use several indicators of
banking sector outreach such as geographic and demographic branch penetration,
loan and deposit accounts per capita, and loan-income and deposit-income ratios.
Some of the most common indicators used in earlier studies have been the number
of bank accounts (per 1000 persons), the number of bank branches (per million
people), the number of ATMs (per million people), amount of bank credit and
amount of bank deposit. These indicators no doubt provide important and useful
information on the outreach of the financial system of an economy. However,
the process of financial inclusion / exclusion is multidimensional. Thus, if these
indicators are used individually, it can lead to a wrong understanding of the extent
of financial inclusion in an economy.

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This study is restricted to two dimensions of financial inclusion largely due

to non-availability of relevant and consistent taluka-wise data so as to compute
comparable IFI. It must be noted that access to banking services is not synonymous
with the use of banking services. Individuals and households who enjoy access to
banking services might decide not to use them, due to socio-cultural reasons or
high opportunity costs. Access refers to the possibility to use banking services and
usage refers to the actual use of financial services.
The access to banking services is measured in terms of two indicators,
namely, geographic branch penetration (i.e., bank branches per 100 sq. km.) and
demographic branch penetration (i.e., bank branches per 10000 people), basically
reflecting the availability of banking services. The indicator of branches per
square kilometer helps characterize the geographic penetration of banks and can
be interpreted as a proxy for the average distance of a potential customer from
the nearest bank branch. Higher geographic penetration would indicate lesser
distance and easier geographic access. The per capita measure of branches is used
to characterize the demographic penetration of banks and can be interpreted as
a proxy for the average number of people served by each bank branch. Higher
demographic penetration would indicate fewer customers per branch and hence
easier access. Higher branch intensity in demographic and geographic terms
implies greater access to the use of banking services by households. The use of
banking services is measured in terms of total deposits mobilized and total credit
advanced. A larger amount of deposits and credit is interpreted as greater usage of
banking services by households.
Sarma (2008) constructed a multidimensional index of financial inclusion (IFI)
across countries by considering three dimensions of financial inclusion, namely,
accessibility, availability and usage of banking services. Researchers have
measured the extent of financial inclusion in India in terms of the IFI by using
a multi-dimensional approach similar to that used by Sarma (Kumar and Mishra
2011; Kumar 2011; Chattopadhyay 2011; Singh and Kodan 2011). In the present
study, the IFI has been constructed largely following the methodology used by
Sarma (2008, 2010, 2012). The index has been modified so as to suit the taluka-
level analysis of financial inclusion.
The IFI is computed by first calculating a dimension index for each dimension
of financial inclusion. The dimension index for the ith dimension in taluka k, dik, is
computed by the following formula:

=
........................... (1)
where
wdi= Weight given to dimension i, 0 ≤ wdi ≤ 1
Aik= Actual value of dimension i in taluka k
li = Minimum value of dimension i (empirically observed lowest value)
Mi = Maximum value of dimension i (empirically observed highest value)
In computing this index, the empirically observed maximum and minimum
values are considered for each dimension. Since the IFI is calculated for different
talukas within the same state, there is only a remote possibility of the empirically
observed highest value being an outlier. It may be noted that these empirically
observed upper and lower bounds are different for different years. The IFI
measures the extent of financial inclusion in a particular taluka relative to the
prevailing situation in all talukas.

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Financial Inclusion and its Determinants:The Case of Goa

Following Sarma (2012), if n dimensions of financial inclusion are considered, a

region’s achievements in these dimensions will be represented by a point Y =(d1,
d2, d3….dn) in the n- dimensional Cartesian space. Point O = (0, 0, 0…0) will
represent the worst situation and point W = (wd1, wd2,……wdn) will represent
the ideal situation. In order to compute the IFI, Y1 (distance between Y and O) and
Y2 (inverse distance between Y and W) are computed. The final IFI is computed
by taking a simple average of Y1 and Y2.
The formulae are as follows:

........................... (2)

........................... (3)

........................... (4)
2

In the present index, a weight of 0.6 has been provided for the index of acces-
sibility and 0.4 for the index of usage. Given these weights, we can represent a
taluka k by a point (ak, uk) in the two dimensional space, such that 0 ≤ ak≤0.6 and
0≤ uk ≤0.4, where ak and uk are the access and usage dimension indexes respectively
for taluka k computed using formula (1). In the two dimensional space, the point
(0, 0) will indicate the worst situation (complete financial exclusion) and the point
(0.6, 0.4) will indicate the best or ideal situation (complete financial inclusion).
The IFIk for taluka k is measured as follows:

........................... (5)
The IFI used in the present study has certain limitations. Firstly, it does not
consider all dimensions of financial inclusion. It includes only the accessibility
and usage dimensions but does not take into account dimensions such as the cost
and ease of transactions. There is no doubt that a multi-dimensional approach
would lead to a more robust IFI. However, the present study had to restrict itself
to only two dimensions mainly due to non-availability of taluka-wise data on
other dimensions of financial inclusion. Secondly, the IFI suffers from lack of
taluka-specific information due to the aggregative nature of the data. For instance,
geographical aspects of financial inclusion such as the rural-urban divide and
gender related aspects are not covered in the study. Thirdly, the IFI does not
distinguish between resident and non-resident bank accounts. As a result of this,
certain talukas such as Salcete and Bardez may show high levels of financial
inclusion on account of a large number of non-resident banking activities. Finally,
though both dimensions are considered equally important for measuring financial
inclusion, relatively less weight(i.e. weight less than one) is given to the dimensions

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due to lack of adequate data on important indicators that completely characterize

these dimensions. As far as accessibility of banking services is concerned, the
importance of bank branches has come down, particularly in the urban areas, on
account of the introduction of internet banking and provision of banking services
through telephones. Similarly, data on credit and deposit do not completely depict
the usage of the financial system, as other services of the banking system, such as
payments, remittances and transfers are not included in the analysis.

Access to and Usage of Banking Services in Goa

The state of Goa has witnessed tremendous progress in banking since liberation.
The number of banking branches in Goa steadily increased from five in 1962, just
after liberation, to 300 bank branches in 1988 after it gained Statehood and further
to 799 bank branches in 2015. The aggregate deposits registered an increase
from Rs. 9 crore in 1962 to Rs.55611.52 crore in 2014-15. The gross credit also
registered a rise from Rs. 3 crore in 1962 to Rs.17469.66 crore by 2014-15. As a
result of this, the credit deposit ratio in 2014-15 was 31% (GOG 2015).
The spread of the commercial banking network is not evenly distributed across
talukas. Table 1 shows the distribution of bank branches across talukas in Goa
for the period from 1994-95 to 2014-15. It can be observed that about 60 per cent
of the banking offices are located in North Goa District. For the same period,
approximately 81 per cent of the bank branches are located in the talukas of Bardez,
Salcete, Tiswadi, Mormugao and Ponda. These five talukas are the relatively more
economically developed talukas of Goa. On the other hand, the talukas of Sattari,
Pernem, Sanguem and Canacona account for only about 11 per cent of the bank
branches in Goa. In 2014-15, the maximum number of branches were located in
Bardez (163) which constituted 20 per cent of the total number of branches. At
the other extreme, the least number of branches was located in Sattari (17) which
constituted 2.13 per cent of the total number of branches in the state. Thus, it can
be seen that the bank branches have not been evenly distributed across the state.
Further, even in those talukas which have a large number of bank branches, there
are a number of villages where there are no banks at all.
Table 1: Taluka-wise Number of Bank Branches in Goa
Year
1994-95 2000-01 2005-06 2009-10 2014-15
Taluka
Tiswadi 66 87 94 102 149
Bardez 70 92 102 118 163
Pernem 10 15 15 17 31
Bicholim 19 20 21 23 35
Sattari 7 11 11 11 17
Ponda 32 41 44 57 82
North Goa District 204 266 287 328 477
Sanguem 15 15 15 17 23
Canacona 9 11 12 15 21
Quepem 12 15 16 17 26
Salcete 70 93 100 121 181
Mormugao 32 44 46 49 71
South Goa District 138 178 189 219 322
Goa State 342 444 476 547 799
Source: Reports on Credit-Deposit Ratio in Goa 1994-95 to 2014-15, Directorate of Planning,
Statistics and Evaluation, Government of Goa

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Financial Inclusion and its Determinants:The Case of Goa

The growth in banking facilities has not been uniform across the state. Over
the same period, the highest growth has been witnessed in Pernem (210 per cent)
followed by Salcete (158.57 per cent) Ponda (156.25 per cent) and Sattari (142.86
per cent). The least growth is observed in Sanguem (53.33 per cent) followed by
Bicholim (84.21 per cent). All the other talukas have recorded growth between 116
to 133 per cent.
The access to banking services is measured in terms of geographic and
demographic penetration. As far as geographic penetration (GP) is concerned,
the highest ranking talukas have been Tiswadi, Mormugao, Bardez and Salcete
and the lowest ranking talukas have been Sanguem, Sattari and Canacona over
the period from 1994-95 to 2014-15. As far as demographic penetration (DP) is
concerned, the highest ranking talukas have been Tiswadi, Mormugao, Bardez
and Salcete and the lowest ranking talukas have been Sattari, Pernem and Quepem
over the same period. The highest ranking talukas remain the same for geographic
penetration. However, as far as demographic penetration is concerned, it is
observed that Ponda emerged as the fourth highest ranking taluka and Mormugao
slipped to the fifth position in 2014-15. Sattari taluka remained the lowest ranking
taluka for demographic penetration. In 2014-15, Sanguem was the lowest ranking
taluka for geographic penetration. The usage of banking services is measured in
terms of total deposits mobilized (TD) and total credit advanced (TC). There has
been a growth in deposits and credit across the state during the period under study.
However, deposits have been larger and have been growing at a faster rate than
credit. As a result, the credit-deposit ratio has been low. The low credit-deposit
ratio in the state is due to low credit off-take in the state and high level of deposits
with banks on account of huge inflow of foreign remittances.
During the period from 1994-95 to 2014-15, the talukas of Salcete, Tiswadi
Bardez and Mormugao accounted for around 86.56 per cent of the total deposits
mobilized in the state. At the other end, the aggregate deposits mobilized in
the six talukas of Sattari, Canacona, Quepem, Sanguem, Pernem and Bicholim
accounted for about 8 per cent of the total deposits. As far as credits are concerned,
approximately 86 per cent of the credits were accounted are from the talukas of
Tiswadi, Salcete, Mormugao and Bardez. The lowest advances were in Pernem,
Canacona and Sattari. It is evident that the talukas of Tiswadi, Bardez, Salcete
and Mormugao, comprising the important commercial centers of Goa, have been
dominating the banking scene. These talukas have been the highest ranking talukas
with respect to both access and usage of banking services.
Table 2: Descriptive Statistics of Indicators of Different Dimensions of Financial Inclusion
A] Access Dimension
1994-95 2000-01 2005-06 2009-10 2014-15
GP DP GP DP GP DP GP DP GP DP
Minimum 1.43 1.41 1.79 1.88 1.79 1.74 2.03 1.64 2.75 1.95
Maximum 30.14 4.23 40.74 5.43 43.68 5.48 45.98 5.55 69.76 6.14
Mean 13.01 2.42 17.08 2.89 18.26 2.86 20.7 3.05 30.34 3.49
SD 12.05 0.86 16.25 1.07 17.49 1.14 19.47 1.21 28.07 1.26
CV 0.93 0.35 0.95 0.37 0.96 0.40 0.94 0.40 0.93 0.36

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B] Usage Dimension
1994-95 2000-01 2005-06 2009-10 2014-15
TD TC TD TC TD TC TD TC TD TC
Minimum 15.69 6.38 46.01 13.26 74.73 25.55 133.48 53.81 294.72 142.81
Maximum 888.88 378.50 2479.0 957.40 5777.00 1569.60 8351.60 4568.80 16037.82 6771.09
Mean 291.61 96.79 765.08 218.65 1613.90 386.84 2682.30 878.34 5055.59 1588.15
SD 358.87 116.55 944.23 291.52 2057.00 491.32 3246.40 1324.70 6007.57 2079.48
CV 1.23 1.20 1.23 1.33 1.27 1.27 1.21 1.51 1.19 1.31
Note: (i) The values for GP and DP are computed on the basis of the data from the Reports on
Credit-Deposit Ratio in Goa 1994-95 to 2014-15, Directorate of Planning, Statistics and Evaluation,
Government of Goa.
(ii) The values for TD and TC are actual values obtained from the Reports on Credit-Deposit Ratio
in Goa 1994-95 to 2014-15, Directorate of Planning, Statistics and Evaluation, Government of Goa.
(iii) SD= standard deviation and CV = Coefficient of variation
Table 2 presents some descriptive statistics of the available data for computing
the index of financial inclusion for selected years between 1994-95 and 2014-15.
Statistics pertaining to each dimension (and to each indicator pertaining to each
dimension) of the index are presented.
As far as the access dimension is concerned, on an average, geographic
penetration has steadily increased from 13.01 branches per 100 square kilometers
in 1994-95 to 30.04 branches per 100 square kilometers in 2014-15. On an average,
demographic penetration increased from 2.42 bank branches per 10000 people
in 1994-95 to 3.89 bank branches per 10000 people in 2000-01. It registered a
slight decline in 2005-06, but rose to 3.49 bank branches per 10000 people in
2014-15 (Table 2). It can be observed that for both geographic and demographic
penetration, the maximum and minimum value recorded has been increasing over
the period. On an average there has been an increase in the access to banking
services in Goa. As far as geographic penetration is concerned, the coefficient of
variation has been substantially high, but it was more or less the same over the
period of study being 0.93 in 1994-95 and in 2014-15. The coefficient of variation
for demographic penetration has been comparatively lower, increasing marginally
from 0.35 in 1994-95 to 0.36 in 2014-15.
As far as the usage dimension is concerned, on an average, total deposits
increased from Rs.291.61 crores in 1994-95 to Rs.5055.59 crores in 2014-15,
whereas total credit increased from Rs.96.79 crores in 1994-95 to Rs.188.15
crores in 2014-15 (Table 2). The maximum and minimum values for total deposits
and total credit have increased substantially over the period. The coefficient of
variation has been high for both deposits and credit. It showed a decline from 1.23
to 1.19 in the case of total deposits, whereas it rose from 1.20 to 1.31 in the case
of total credit for the same period. It is revealed that the usage of banking facilities
has also increased over the period.

Index of Financial Inclusion for Goa

The Index of Financial Inclusion (IFI) has been computed for all the talukas in the
state of Goa. Since the IFI depends on the access and usage dimensions, the index
of access and usage dimensions are discussed first. Table 3 presents the computed
index values for the two dimensions respectively for selected years between 1994-
95 and 2014-15.

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Financial Inclusion and its Determinants:The Case of Goa

Table 3:Index Values for Dimensions of Financial Inclusion

Year
1994-95 2000-01 2005-06 2009-10 2014-15
Taluka
Access Usage Access Usage Access Usage Access Usage Access Usage
Tiswadi 0.599 0.400 0.600 0.375 0.600 0.345 0.599 0.400 0.599 0.400
Bardez 0.481 0.236 0.437 0.207 0.459 0.189 0.512 0.164 0.564 0.213
Pernem 0.026 0.002 0.049 0.003 0.045 0.001 0.064 0.001 0.119 0.006
Bicholim 0.143 0.040 0.078 0.022 0.083 0.019 0.095 0.018 0.102 0.019
Sattari 0.002 0.000 0.003 0.000 0.003 0.001 0.001 0.001 0.003 0.001
Ponda 0.198 0.057 0.167 0.055 0.174 0.052 0.249 0.065 0.235 0.063
Sanguem 0.106 0.016 0.039 0.009 0.034 0.005 0.052 0.007 0.046 0.006
Canacona 0.082 0.005 0.063 0.004 0.076 0.003 0.118 0.005 0.120 0.004
Quepem 0.061 0.018 0.035 0.019 0.045 0.018 0.050 0.016 0.053 0.015
Salcete 0.403 0.302 0.372 0.298 0.378 0.305 0.451 0.261 0.451 0.279
Mormugao 0.415 0.153 0.394 0.136 0.386 0.170 0.400 0.145 0.382 0.138
Note: The index values computed in this table are based on data from the Reports on Credit-
Deposit Ratio 1994-95 to 2014-15, Directorate of Planning, Statistics and Evaluation, Government of
Goa
The indicators used to compute the index for the access dimension are
geographic penetration and demographic penetration. These indicators are
given equal weights and the average of these indexes represents the index for
the access dimension. The index value for the access dimension was the highest
for Tiswadi (0.599) followed by Bardez (0.564), Salcete (0.451) and Mormugao
(0.382) in 2014-15. The ranking remained more or less the same throughout the
period, the only exception being that Mormugao occupied the third position in
1994-95, 2000-01 and 2005-06 but moved to the fourth position in 2014-15. The
lowest ranking talukas were Sattari, Sanguem, Quepem, Pernem,and Canacona in
1994-95 and in 2014-15.
The index value for Sattari taluka has been noticeably very low and was close to
zero thereby making Sattari the lowest ranking taluka in terms of access.
The indicators used to compute the index for the usage dimension are total
deposits and total credit. These indicators are also given equal weights and the
average of these indexes represents the index for the usage dimension. As far as
the usage dimension is concerned, the index value was the highest for Tiswadi
(0.400) followed by Salcete (0.279), Bardez (0.213) and Mormugao (0.138) in
2014-15. The ranking has remained the same throughout the period. The lowest
ranking talukas were Sattari, Pernem, Sanguem, Canacona and Quepem in 1994-
95 and in 2014-15. As in the case of the access dimension, the index value of the
usage dimension for Sattari taluka was very low and has been zero or close to zero
throughout the period, thereby making Sattari the lowest ranking taluka in terms
of usage.
It can be observed that for the period of study, Tiswadi has ranked the highest
for both the access and usage dimensions. Bardez ranked second for the access
dimension but third for the usage dimension. It is revealed that Salcete has
performed better than Bardez for the usage dimension. This implies that even
though the access to banking services as measured by banking penetration has not

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been as high in Salcete as compared to Bardez, the usage of banking services in

terms of deposits and credit has been relatively higher there. The larger deposits
are probably due to the larger inflow of foreign remittances and the larger credit
could be attributed to the greater industrial development and hence greater need
for credit in Salcete. Mormugao taluka seems to have been performing better in
terms of access as compared to usage of banking services. Bicholim and Ponda
talukas have also fared better in terms of access as compared to usage. The same
is the case in Canacona, Pernem, Sanguem Quepem and Sattari. Sattari has ranked
the lowest in terms of both access and usage of banking services, the index values
being close to zero for the entire period.
Table 4 presents the IFI values and the categorization of talukas for selected
years between 1994-95 and 2014-15. As evident from the table, and as expected,
the talukas across the state of Goa are at different levels of financial inclusion.
Table 4: IFI Values and Categorization of Talukas in Goa
Year 1994-95 2000-01 2005-06 2009-10 2014-15
Taluka IFI Category IFI Category IFI Category IFI Category IFI Category
Tiswadi 0.999 High 0.973 High 0.942 High 0.999 High 0.998 High
Bardez 0.731 High 0.661 High 0.668 High 0.698 High 0.786 High
Pernem 0.035 Low 0.063 Low 0.057 Low 0.082 Low 0.152 Low
Bicholim 0.200 Low 0.109 Low 0.113 Low 0.129 Low 0.137 Low
Sattari 0.003 Low 0.004 Low 0.005 Low 0.002 Low 0.004 Low
Ponda 0.277 Low 0.237 Low 0.245 Low 0.342 Medium 0.325 Medium
Sanguem 0.140 Low 0.053 Low 0.046 Low 0.069 Low 0.061 Low
Canacona 0.105 Low 0.081 Low 0.097 Low 0.150 Low 0.153 Low
Quepem 0.086 Low 0.055 Low 0.066 Low 0.072 Low 0.074 Low
Salcete 0.696 High 0.657 High 0.670 High 0.720 High 0.736 High
Mormugao 0.593 Medium 0.557 Medium 0.574 Medium 0.571 Medium 0.546 Medium
Note: The IFI values computed in this table are based on data from the Reports on Credit- Deposit
Ratio 1994-95 to 2014-15, Directorate of Planning, Statistics and Evaluation, Government of Goa
In the year 2014-15, for instance, the levels of financial inclusion, as measured
by the IFI, varied from as low as 0.000 for Sattari to as high as 0.998 for Tiswadi.
For the entire period of study, Tiswadi has been the highest ranking taluka with
respect to the IFI. The value of the IFI has been very close to 1 in Tiswadi, thus
implying that Tiswadi has the highest level of financial inclusion as compared to
all the other talukas. In 2014-15, the highest ranking talukas were Tiswadi (0.998),
followed by Bardez (0.786), Salcete (0.736), and Mormugao (0.546). The ranking
has remained more or less the same throughout the period, with the exception that
Bardez occupied the second position and Salcete occupied the third position in
1994-95, 2000-01 and 2012-13,
At the other extreme, Sattari has been the lowest ranking taluka with respect to the
IFI. In Sattari taluka, the IFI has been very close to zero throughout the period and
hence Sattari can be characterized as the taluka with the lowest level of financial
inclusion. In 1994-95, the IFI was the lowest in Sattari (0.003), followed by Pernem
(0.035), Quepem (0.086) and Canacona (0.105). The situation changed in 2000-01
with Quepem, Sanguem and Pernem becoming the second, third and fourth lowest

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Financial Inclusion and its Determinants:The Case of Goa

ranking talukas respectively. Thereafter the situation worsened in Sanguem as it

became the second lowest ranking taluka in 2005-06. However, between 2005-
06 and 2014-15, the IFI showed a significant improvement in Canacona. This is
attributable to the deeper banking penetration in Canacona due to the increase in
bank branches implying greater access to banking services there. However, though
there was improvement in access to banking services in Canacona, there was no
corresponding improvement in usage. This indicates that there is no guarantee that
if a region fares better in terms of access, it will necessarily fare better in terms of
usage of banking services. Nevertheless there was an improvement in the overall
IFI in Canacona. In 2014-15, the lowest ranking talukas continued to be Sattari
(0.004), followed by Sanguem (0.061), Quepem (0.074) and Pernem (0.152).
Generally, it is expected that with development and improvements in incomes
financial inclusion is likely to improve. Further, a major decline in IFI values is
not expected, unless there are situations such as financial crisis or outbreak of war.
Thus, in general, we could expect the IFI values to improve for all regions over
the years. In the present study, there has been no consistent or significant change
in the IFI over a period of time.
The talukas have been placed into three categories on the basis of their IFI
values as follows:
1. 0.6 ≤ IFI ≤ 1 – high financial inclusion
2. 0.3 ≤ IFI < 0.6 – medium financial inclusion
3. 0.0 ≤ IFI < 0.3 – low financial inclusion
Tiswadi, Bardez and Salcete talukas have had consistently high IFI values of
above 0.6 throughout this period and are categorized as talukas with high financial
inclusion. Mormugao has been in the range of medium financial inclusion
throughout, the value of the IFI being between 0.5 and 0.6. Ponda, on the other
hand, has moved from being a low IFI taluka to being a medium IFI taluka in 2009-
10 All the remaining six talukas are categorized in the category of low level of
financial inclusion, the IFI values ranging between 0 and 0.3. Within this category,
Sattari has had the lowest IFI values throughout. The talukas of Sanguem, Quepem
and Pernem have also had low values of IFI, generally below 0.1 throughout the
period.

Factors Determining Financial Inclusion

There are several factors that affect financial inclusion and the interaction of
these factors with each other is likely to be significant. Sarma and Pais (2011)
identified certain factors and categorized them as (i) socio-economic factors such
as income, employment, inequality, educational attainment, literacy and so on,
(ii) factors relating to physical infrastructure such as road network, telephone and
television network, access to information through newspapers, radio, cable TV,
computer and internet and (iii) banking sector factors such as soundness of the
banking system, ownership pattern of banks and interest rates.
Several studies have highlighted the importance of socio-economic factors
in influencing financial inclusion. These factors include income levels, income
distribution, caste, religion, education, urbanization and migration (Barr 2004;
Devlin 2009; Sarma and Pais 2011; Buckland et al., 2005). Studies have shown

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that people living in rural areas and in locations that are remote from urban areas
are more likely to be financially excluded (Leyshon and Thrift 1995; Kempson
and Whyley 2001; Beck and Brown 2011). Employment has also been found to be
associated with financial inclusion (Goodwin et al., 1999).
Studies have shown that the use of banking services is found to be more common
among households located in urban areas, households with higher income and
wealth, as well as for households in which an adult member had professional
education and formal employment (Martinez 2006; Beck and Brown 2011; Pal and
Pal 2012). Rural population or the proportion of rural population has been found
to be negatively associated with financial inclusion. In other words, urbanisation
is positively associated with financial inclusion (Sarma and Pais 2011; Solo and
Monroth 2006; Al-Hussainy et al., 2008). Urbanization is considered to be an
important factor influencing financial inclusion. Urbanization is defined here as
the percentage of urban population to total population. For the present study, the
figures for urbanization are available only for the census years. For the years in
between the census years, the figures have been arrived at by the interpolation
method by using the percentage change method. Urbanization is accompanied by
industrialization and economic development. In the present analysis, urbanization
is expected to be a positive determinant of financial inclusion.
Higher literacy rates, particularly adult literacy, have also been found to be
positively associated with financial inclusion (Sarma and Pais 2011). The level of
education of the people in a region influences the level of financial inclusion (Kliza
and Pederson 2002; Caskey et al., 2006; Al-Hussainy et al., 2008; Ghosh 2011;
Cull and Scott 2011; Seluhinga 2013). In the present analysis, the total number
of students enrolled in schools at the higher secondary education level, colleges
and university is considered as a proxy for the education level. It is believed that
generally an individual who has completed his/her higher secondary education,
graduation or post-graduation, would be in a better position to make financial
decisions than an individual who is a school dropout. Hence, this is considered as
an important factor determining financial inclusion. An increase in the number of
students enrolled, and hence in the level of education, is expected to be a positive
determinant of financial inclusion.
Tourism is one of Goa’s fastest growing industries. Tourism does have significant
direct benefits at the local level by generating employment and improving wages,
and several indirect effects such as stimulating growth in tourism-related activities
such as services and transportation. Tourism revenues go beyond hotel operators
and employees, tour operators and restaurateurs. Tourist expenditures are typically
incurred partly on local goods and services, further raising output and incomes.
Thus, tourism does have an impact on financial inclusion as well. It is argued here
that an increase in the number of tourists in a particular region will result in higher
levels of financial inclusion. In other words, there is a direct relationship between
tourist arrivals and financial inclusion.
In order to understand the factors affecting financial inclusion, a multiple
regression model is developed and estimated. A pooled regression model is
estimated using the method of ordinary least squares using data of the 11 talukas for

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Financial Inclusion and its Determinants:The Case of Goa

period 1994-95 to 2014-15. In the present analysis, a pooled regression approach

is used instead of a fixed effects or random effects model for the simple reason
that the talukas that are pooled together do not show much heterogeneity. In the
present analysis, the dependent variable, y, is a logit transformation of the index
of financial inclusion (IFI).While the IFI lies between 0 and 1, the transformed
variable lies between -∞ and ∞. By incorporating the transformed variable, we are
able to carry out the classical OLS regression (Sarma and Pais 2011; Singh and
Kodan 2011).The transformed variable, y, is a monotonically increasing function
of IFI. The transformed variable, y, is a logit function of the IFI.
It is defined as follows:
........................... (6)

The general form of the regression equation is

........................... (7)
In the present analysis, the transformed IFI variable, y, is regressed over three
socio-economic variables namely, urbanization, student enrollment and tourist
arrivals. The transformed IFI variable, y, is expressed as a function of these three
independent variables and the regression equation is expressed as follows:
........................... (8)
where: y=Transformed IFI
SE=Number of students enrolled in schools at the post-matric level, colleges
and university
UR=Percentage of urban population to total population
TA=Number of tourist arrivals (domestic and foreign)
It is hypothesized that all the three independent variables, namely, student
enrolment (SE) which is considered as a proxy for education level, urbanization
(UR) and tourist arrivals (TA), are positive determinants of financial inclusion.
Urbanization and tourist arrivals could be considered as proxies for economic
development. The analysis is restricted to these three variables on account of non-
availability of taluka-wise data for other relevant variables such as income and
employment.
The results of the regression are presented in Table 5. The results of the
regression model are satisfactory and interesting. It can be seen that all the three
independent variables are found to have a positive impact on financial inclusion
as the estimated coefficients have positive signs which are the expected signs as
stated. The estimated coefficients are significant at 1% level.
The coefficient of student enrolment is positive and highly significant. Thus,
student enrolment is found to have a positive impact on financial inclusion
thus implying higher levels of financial inclusion at higher levels of education.
Urbanization is also found to have a positive impact on financial inclusion. This
means that as the proportion of urban population to the total population increases,
the level of financial inclusion will also increase. Tourist arrivals are also
positively related to financial inclusion. This implies that as the number of tourists

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increases,the level of financial inclusion will also increase. The model has been
corrected for heteroskedasticity and robust standard errors have been reported.
Table 5: Results of Regression Analysis
Dependent Variable: y [y=ln(IFI/(1-IFI))]
Standard
Variable Coefficients t- ratio p- value
Error#
Constant -4.5372 0.2436 -18.620 0.000***
SE 0.0002 0.00004 6.344 0.000***
UR 0.0427 0.0046 9.249 0.000***
TA 0.000002 0.0000007 3.287 0.001***
No. of 231
observations
F (3,227) 103.73
P-value (F) 0.000
R- squared 0.695
Adjusted R- 0.691
squared
Note:#Robust standard errors
***Significant at 0.01 level
The adjusted R squared is 0.691, which is fairly good considering the fact that
we have used pooled data. The model fits well because 69.1% of the variation in
the dependent variable is explained by the explanatory variables. The F-value is
95.75 and the p-value of obtaining an F-value of 95.75 or greater is practically
zero. This reveals that all independent variables jointly determine the dependent
variable and the model is very good. In other words, all the explanatory variables
are found to be individually and collectively statistically significant.

Conclusions and Policy Implications

It is evident from the study that there has been a phenomenal growth of banking
facilities in Goa. However, financial inclusion in the context of access and usage has
not been satisfactory. Moreover, bank branches are not evenly distributed across
the state. There are wide disparities in financial inclusion across the talukas. The
talukas of Tiswadi, Bardez, Salcete and Mormugao have been the highest ranking
talukas in terms of both access and usage of banking services for the period of
study. Sattari has been the lowest ranking taluka in terms of both dimensions of
financial inclusion. The study shows that even though a region performs better in
terms of the access dimension, it does not necessarily perform better in terms of
the usage dimension.
The IFI values clearly indicate that the level of financial inclusion is significantly
low in large parts of the state of Goa. The talukas of Tiswadi, Bardez and Salcete
have had consistently high IFI values, whereas Mormugao has been in the range of
medium financial inclusion throughout the period 1994-95 to 2014-15. All the other
talukas have had low levels of financial inclusion, with the exception of Ponda,
which moved from low levels to medium levels of financial inclusion in 2009-10. It
is observed from the study that although there has been an improvement in outreach
activity in the banking sector, the achievement is not significant. The findings also

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Financial Inclusion and its Determinants:The Case of Goa

indicate that regions characterized by low levels of education, lower degree of

urbanization and lower levels of tourist arrivals seem to be less financially inclusive.
In other words, regions that are less developed are also less financially inclusive.
From the above analysis, it can be seen that though Goa has been declared as a
completely financially inclusive state, the degree of financial inclusion varies across
talukas. The level of development has a direct correlation with the degree of financial
inclusion and concerted efforts need to be made to bring about the development of the
backward and less developed regions. The government has to initiate steps to attain
more balanced regional development to make financial inclusion more meaningful.
Each region has its own peculiar characteristics and therefore it is imperative to
adopt region-specific measures. Government policy to improve levels of education
and urbanization, and also to promote tourism, will have a positive impact on the
status of financial inclusion in Goa.

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