Access to Finance and Its Association with Development in Rural India

Financial development has been correlated with better development outcomes. Even so, the access dimension of financial development has often been overlooked. In this context, the paper throws initial light on the nuances of horizontal inequality in the access to finance from institutional sources and development outcomes such as poverty, educational attainment and standard of living in rural area for Indian states. It is seen that the percentage of rural households getting access to finance from institutional agencies has remained considerably low and there is significant variation across states. More importantly, there is significant amount of horizontal inequality in the access to finance from institutional sources. Interestingly, better access to finance is found to be associated with better development outcomes. The most important finding of the paper is that lower (higher) inequality in the access to finance from institutional sources is associated with better (worse) development outcomes.