As part of the NSE-IFMR ‘Financial Inclusion’ Research Initiative, Vishnu Prasad, Anand Sahasranaman, Santadarshan Sadhu, and Rachit Khaitan of IFMR Finance Foundation have authored a working paper for the series. Using customer data from a financial services institution that operates in remote rural districts of India, the authors constructed stylised typologies of household asset portfolios based on primary and secondary sources of income. Despite a demonstrated demand for various financial services, this study 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, the increase ranging from 2.02% to 4.97%, at the extant levels of risk.
The 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.