Patterns of Financial Behavior Among Rural and Urban Clients: Some Evidence from Tamil Nadu, India

There is by now ample evidence that the poor lack access to basic financial services. It is, therefore, no surprise that financial inclusion has become a focus of attention for development professionals seeking to alleviate poverty around the world. However, the nature of poverty and deprivation, the livelihood, and the financial needs of the poor vary widely across different contexts. In India, for instance, the financial needs and practices of the poor differ across rural and urban areas. An in-depth understanding of the financial behavior of the rural and urban poor is essential for designing the right product-mix that addresses their needs. Our study contributes to this goal by examining how the rural and urban poor in the state of Tamil Nadu, India, manage their money. We adopted the “Q-squared” methodology (combining quantitative and qualitative methods) to gain a holistic understanding of the financial behavior of these two distinct populations. We used financial diaries to collect data on income, consumption, savings, borrowing and lending from a sample of poor households over a period of six months. Our research subjects were mostly women. In general, the study found that these populations shared a similar practice of diversifying portfolios of savings, borrowing and insurance products. At the same time, the research found evidence of diverse financial needs of the rural and urban poor. Mainly, the study found that the two disctinct populations differ in (a) the activities for which they use the various financial tools and (b) the degree of access to a diversified portfolio of services.