Impact of Financial Inclusion on Standard of Living: Evidence from Rural Households in Assam

Abstract

There is consensus on the positive impact of financial inclusion on economic prosperity globally. However, there is limited empirical evidence to support the causal effects of financial inclusion on the standard of living in India, particularly in rural areas. The present study aims to investigate the impact of financial inclusion on the standard of living among rural households in the Barak Valley region of Assam. The households were selected using a multi-stage sampling design. Five blocks were selected randomly out of 27 blocks in the first stage. In the second stage, two villages from each block have been selected, one with at least one financial institution and the other without financial institutions. In the final stage, we interviewed heads of the households on a random basis. Finally, we collected the responses from 405 households through a structured interview schedule. The interview schedule is considered because of the low literacy among the respondents. A Composite Index has been constructed to measure household financial inclusion, considering the use, access and quality dimensions of financial services as per the methodology proposed by the Reserve Bank of India. Similarly, the Living Standard Index was constructed considering WaSH (Water, Sanitation and Hygiene), Education, Health and Wealth aspects. Logistic regression analysis was employed to investigate the impact of financial inclusion on the standard of living among rural households. The study found that financial inclusion has a positive impact on the standard of living. Further, the result indicates that permanent employment, household expenditure and association with self-help groups positively impact the standard of living. Policymakers should integrate financial inclusion into broader development and poverty reduction strategies. Special attention is needed to reduce barriers that rural populations and low-income households face by expanding digital financial infrastructure, promoting financial literacy and supporting inclusive fintech innovations.