Abstract

The Government of India had mandated in 2009 that MGNREGA worker wages be paid through banks and post offices to enhance transparency and reduce fraud, and introduce these workers from poor and marginalized communities to formal financial institutions, with the expectation that this would promote greater financial inclusion. This report examines the impact of MGNREGA wage payments on financial inclusion through a primary survey of 258 beneficiaries across eight gram panchayats in the Tumkur and Davanagere districts of Karnataka. The study also analysed the bank account data of the surveyed beneficiaries obtained through the core banking system facilitated by the respective banks.

The report indicates that the poor and marginalized face barriers to effectively utilizing banks, such as transaction costs, low incomes, and inconvenient procedures, which are further exacerbated by unscrupulous exploitation and corruption. The report acknowledges that mandating MGNREGA wage payments through formal financial institutions is a commendable effort to promote financial inclusion, but stresses that it may not be sufficient without addressing other necessary conditions. It argues that a more comprehensive approach, such as providing banking services through business correspondents or facilitators, is required to effectively enhance financial inclusion. Additionally, the report recommends leveraging the success of self-help groups in fostering savings and providing soft loans as a potential means to further drive financial inclusion.

BV Rao, M., Kumar, AS., & Krishnaswamy, D. (2013). Study on the role of MGNREGA in enhancing financial inclusion. Bengaluru, India: Centre for Budget and Policy Studies, and Department of Rural Development and Panchayat Raj, Government of Karnataka.