How effective are local institutions in promoting **financial inclusion** in India? This research investigates the differential effect of grassroots institutions on FI, especially in relation to commercial banks. Using moneylender dependence as an indicator of financial exclusion, the study develops FI indices based on indicators from commercial and cooperative banks. The results indicate that cooperatives decrease dependence on moneylenders even at low levels of FI. Commercial banks, however, exhibit an inverted U-shaped relationship, implying a decreasing effect only after reaching a threshold level. This study highlights the importance of cooperatives in fostering financial inclusion and provides insights for policymakers aiming to reduce financial exclusion in India.
This article, appearing in the Journal of International Development, explores the role of grassroots institutions in fostering financial inclusion in India. This aligns with the journal's focus on global development challenges and the impact of financial systems on social and economic progress in developing countries, a key theme for the journal's readership.