Poornima Group of Colleges
Financial Inclusion and Stock Market
Participation
Rahul
Saini, Pooja Toonwal and Vikram Gupta
Research
paper
Financial
Inclusion and Stock Market
Participation
ABSTRACT
Financial literacy is
crucial for financial inclusion. Financial literacy has assumed greater
importance in recent years especially from 2002 as financial markets have
become increasingly complex and the common man finds it very difficult to make
informed decisions
“The process of ensuring access to financial
services and timely and adequate credit where needed by the vulnerable groups
at an affordable cost.” But financial literacy not only means credit
availability to poor but enhance the access to stock market, pension insurance
and much more.
Investors tend to use
thumb rules or seek advice from friends and relatives. These results often in
poor outcomes and they lose faith in the Stock Market. This condition leads to
low participation of retail investor in stock market which eventually cause for
market instability. Only way to increase investor participation in stock market
is to prepare them so they can understand share market behavior.
Financial education primarily relates to
personal finance, which enables individuals to take effective action to improve
overall well-being and avoid distress in financial matters. Hence improvement
of financial knowledge of households is necessary for them to participate
continuously in financial markets. Financial literacy plays a vital role in the
efficient allocation of household savings and the ability of individuals to
meet their financial goals.
KEYWORDS: Financial
inclusion, financial literacy, Stock market, retail investors, vulnerable
groups.
INTRODUCTION
Since the independence of the country, our development
has been guided by an ethical compass oriented by deep compassion for all her
citizens especially the poorest and the most vulnerable over the decades, we
have evolved policies and program and built institutions whose aim has been to
create the economic foundation that will secure equitable development. But
still being a youngest nation we are lagging behind and our capital market are
still relying on foreign funds.
Although the economy has made a rapid
progress with higher savings and investment rates, inclusion is still a
challenge. Where age is inversely
proportional to risk appetite we have masses with high risk appetite but still
they do not show any interest towards investment in stock market. Many of them
have problem of lack of interest which is mainly due to low awareness about the
fundamentals of stock market which make it tedious to understand and difficult
to deal with. Low awareness here refers to the lack of financial literacy. India
not only lags behind other developed nations but also have lesser degree of
financial inclusion.
Financial literacy is crucial for financial
inclusion. According to Dr Subbarao,
Reserve Bank Governor of India, “In the Reserve Bank, we treat financial
inclusion and financial literacy as twin pillars. Financial literacy stimulates the demand side – making
people aware of what they can and should demand. Financial inclusion acts from the supply side – providing in the
financial market what people demand”. Raising financial literacy not
only supports social inclusion but also enhances the wellbeing of the
community.
C. Rangrajan
committee on financial inclusion defined financial inclusion as “the process of
ensuring access to financial services and timely and adequate credit where
needed by the vulnerable groups at an affordable cost.” In india the basic concept of financial inclusion
is having saving or current account with any bank, in reality it includes
loans, insurance, services, access to share market and much more.
THEORITICAL BACKGROUND
As stated
by the Deputy Chairman of Planning Commission Montek Singh Ahluwalia- “Finance
is the lubricant that will make income growth possible in country”. he added
that “the concept of financial inclusion should be more far reaching than just making
credit available for poor people”.
This
study is focusing on the participation of retail investors which states that
financial inclusion is beyond banking. Capital
market plays a significant role in wealth distribution and capital availability
to investors
The capital markets
in India need to cast off the conventional notion that financial inclusion is a
part of social responsibility and should realize that it can actually foster
profitable business. Indian households are among highest savers in the world
but even less than 1% people are participating in capital markets, from this
one can easily make out that there is high scope as we have potential investors
which are still untouched. Complete financial inclusion would need financial
literacy and complementary technology and methods to increase accessibility
adequate competition to cause more substantial marketing and selling. We need
some regulatory bodies and agencies that can increase direct participation of
masses in financial system. Innovations, credit counseling, financial
education, proper segment identification, customization and simplification can
significantly affect the decision of population regarding investment in stock
markets.
In India,
mobiles and internet are technologies that likely to trigger faster growth in
financial markets. Over 70-80 million people use internet but penetration rate
is as low as 7% of a billion which again
signifies the great potential investors in country for internet trading.
Penetration of mobile is more than internet with over 400 million subscribers; it’s
a faster mode for financial inclusion.
REWIEV OF LITERATURE
According
to Pranab Mukherjee(finance minister), “Financial Inclusion is not synonym to
merely opening a bank account but rather to access to stock market, insurance products
and pension products etc.”
Montek
Singh Ahluwalia( Deputy Chairman of planning commission), “Finance is the lubricant that will make
income growth possible in country”. He added that “the concept of financial
inclusion should be more far reaching than just making credit available for
poor people”.
According
to Joseph Massey (MD and CEO of MCX stock exchange), “capital market can play a
significant role in creating financial inclusion by making multiple product
services to the masses. This requires conscious efforts to identify the
respective target segments and enhanced penetration through financial
education, product innovation, diversification, customization and
simplification.”
RESEARCH AND METHODOLOGY
This
study is based on exploratory research, where secondary data is given
significance in concluding and primary data is collected via questionnaire and
general opinion survey. Convenient sampling method is used data collection.
DATA
Primary
as well as secondary data is collected for the purpose.
SAMPLE
Questionnaires
are filled with the sample size of 50 respondents as per the convenience.
Analysis
is done keeping in mind that only educated (with minimum graduation) are picked
for filling questionnaire
LIMITATIONS
1) Time constraint
2) Low reach
3) Low potential respondents
4) Based on convenient sampling
5) No test is conducted so as to authenticate the results.
DATA AND ANALYSIS
This study is done taking 50 respondents
whose qualification is minimum graduation. In this study it is found that there
are four categories which are based on age because interest of people in stock
market varies significantly according to their age. 1st category
consists of 20-25yrs respondents, 2nd category consists of 26-40yrs
respondents, 3rd category consists of 41-60 yrs respondents and last
category consists of respondent above 60yrs of age.
Interpretation:
People
of 1st category save around 20% of their income because this is the
young generation who are extravagant in nature and save less. 2nd
category people save around 30% as they are more responsible and family person
as compared to 1st category so they need to become economic and save
more. 3rd category which lies between 41years to 60years save
comparatively less because they have burden of family and have extra expenses
as compared to other categories. 4th category save highest of their
incomes because they don’t have any new expenses and have enough to save.
Interpretation:
Above
chart show the investment habits of respondents. 1st category invest
maximum up to 30% of their savings because they are risk takers and have good
risk appetite. 2nd category invest up to 20% of their savings as they have comparatively less risk appetite
and they want to hedge from risky avenues. 3rd category invest up to
25% of their saving as they are of keen interest in share market plus
experience to handle stock market fluctuations. According to this research
there is no respondent above 60years who invest at all in share market because
they are highly risk averse.
Interpretation:
This
study came out with reasons in respondents which stops them from investing in
share markets these are:
50% people don’t invest
because of high risk involved in it due to market fluctuations. 30% people
don’t invest because they don’t have proper knowledge about share market
fundamentals. 20% people don’t invest because of lack of interest and 10%
people don’t invest due to some other reasons like shortage of time or savings
etc.
It is found that 20% people
who do not invest due to lacking interest is again because they do not
understand the terminologies of share markets and they find it boring which
show that they need financial literacy.
Interpretation:
In
this study it is analyzed and found that if knowledge is provided about share
market it will significantly affect the investment decision of people. 40%
respondents said that they will surely invest if they are provided with the
proper education regarding stock market. 20% respondent haven’t shown any interest
in investment in share market as they are high risk averse and have other
reasons for not to invest. 30%respondent said their decision may fluctuate with
the provision of financial literacy and only 10% respondent where unaffected.
FACTS
AND FINDINGS:
-
In India concept of financial inclusion
revolve basically around having bank accounts and credit facilities but in fact
financial inclusion is a wider term and include much more than banking and
credit facility like insurance services, mutual fund, share market etc.
-
Total percentage of population having deposit
accounts are found to be little over than 61%.
-
Percentage of population having credit
account is 9.9%
-
Shares and debentures of private corporate
constitute of just 1.2% of the total financial savings in country.
-
Savers prefer to park their money in bank
deposits because they have knowledge about services and instrument.
-
Policy makers are under investing in
investor’s protection and awareness.
-
All the financial regulators be it the RBI,
SEBI, IRDA, PFRDA have their own versions of investors protection and literacy
which is contradictory to each other and not working efficiently.
CONCLUSION
From
this research it is concluded that there is greater potential market in India
which is untouched and provide great scope to our country towards growth and
development but there is high need of financial inclusion so as to grab the
growth opportunities. Due to lack of financial inclusion in capital market
there is lack of participation of retail investors and so Indian market is have
to depend on foreign fund which is one of the main reason behind the
instability of Indian capital market. Stability is not gain unless the common man becomes a wiser investor
.We need to convert a country of savers into a nation of investors which
can be improved by proper financial literacy and inclusion.
SUGGESTIONS:
1)
Participation of masses in capital market is
of great importance which can even help in poverty removal.
2)
There should be single agency which can look
after the financial literacy and promote financial inclusion as there is lack
of coordination in different regulatory which hampers the purpose of financial
inclusion.
3)
Financial inclusion should hold ground from
primary classes by including it in primary syllabus. Children have to be taught
both financial intricacies of financial product and moral hazards.
4)
Educational institutions should increase the
frequency of conferences held by them regarding financial inclusion.
5)
Awareness campaign should be conducted to
provide basic fundamental knowledge to general public.
6)
Organize contest from which people can take a
step forward towards participation in these kinds of quizzes at school and
college or institutional levels.
7)
Using of mobile technology in trading stock
market.
REFERENCE
-
A report on Financial Inclusion and Microfinance in
India: An OverviewJayasheela1, Dinesha P.T2 and V. Basil Hans3
·
Financial Literacy-The Demand Side of Financial Inclusion Dr. R
Ramakrishnan
·
A workshop on under the aegis of security market awareness campaign
empowering investor through education by SEBI.
·
Smart
Money: The E¤ect of Education, Cognitive Ability, and Financial Literacy on
Financial Market ParticipationShawn Cole and Gauri Kartini Shastry_February 2009
·
www.treasury.gov/resource-center/financial
education/Documents/NationalStrategyBook_12310%20(2).pdf
·
http://www.fsa.gov.uk/
·
http://www.ukyouth.org/getinvolved
·
http://www.legislation.gov.uk/ukpga/2010/28?view=plain
·
http://cfltaskforce.treasury.gov.au
·
http://www.financialliteracy.org.nz/sites/default/files/webfm/National%20Strategy/National_Strategy_for_Financial_Literacy_2010.pdf
·
The
Economic times Page no. 4 on dec12, 2011
·
Times of
India, Page no. 7 on nov5, 2011
