Financial inclusion in India: How far do grassroots institutions matter?

Though the relevance of grassroots institutions for financial inclusion (FI) is widely recognised, we still do not fully understand its differential effect on FI, particularly in relation to commercial banks. To investigate this issue, we consider the household's moneylender dependence as an indicator of financial exclusion and thus our outcome variable. Further, we have developed FI indices using indicators of commercial and cooperative banks, which we used as explanatory variables in our analysis. Our results show that, while there is a decreased dependence on moneylenders even at low levels of FI through cooperatives, commercial banks show an inverted U-shaped relationship implying a decreasing effect only after a threshold level.