How Much Can Asset Portfolios of Rural Households Benefit from Formal Financial Services?

Authors: Vishnu Prasad, Anand Sahasranaman, Santadarshan Sadhu, Rachit Khaitan, IFMR Finance Foundation
Publication: NSE, 2014.

Abstract:

Despite a demonstrated demand for various financial services, this paper finds that the asset portfolio of the average rural household in India is composed almost entirely of two physical assets—housing and jewellery. A comparison with a hypothetical portfolio of financial assets reveals that rural households could earn significantly higher levels of real returns—an increase of 2.02% to 4.97%—at the extant levels of risk. Our results point to the urgent policy imperative to provide rural households with access to financial instruments that would allow them to construct a more diversified, tradable, and liquid portfolio offering higher yields and shelter from local market fluctuations.

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