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Accepted Manuscript
The Singapore Economic Review
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Article Title: Linking Harmonious CSR and Financial Inclusion: The moderating ef-
fects of financial literacy and income

Author(s): Kuldeep Singh, Madhvendra Misra

DOI: 10.1142/S0217590820500629

Received: 01 January 2020

Singapore Econ. Rev. Downloaded from www.worldscientific.com

Accepted: 06 September 2020

To be cited as: Kuldeep Singh, Madhvendra Misra, Linking Harmonious CSR and Finan-
cial Inclusion: The moderating effects of financial literacy and income,
The Singapore Economic Review, doi: 10.1142/S0217590820500629

Link to final version: https://doi.org/10.1142/S0217590820500629

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Linking Harmonious CSR and Financial Inclusion: The moderating effects
of financial literacy and income

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Kuldeep Singha* and Madhvendra Misrab
a*
Research Scholar, Department of Management Studies, Indian Institute of Information
Technology, Allahabad, India. P.I.N. 211015
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Email Id. [email protected]

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Ph. No. +91-9650706700
b
Associate Professor, Department of Management Studies, Indian Institute of Information
Technology, Allahabad, India.P.I.N. 211015
Ph. No. +91-9450627589
Email- [email protected]

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Abstract - This study focuses on the effect of Corporate Social Responsibility

(CSR) on financial inclusion behavior in rural communities. CSR in the
domains of community engagement, education and livelihood initiatives are all
referred to as ‘harmonious CSR’ in the paper. The study further explores the
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moderating influence of financial literacy and income on harmonious CSR-

financial inclusion linkages.
A field survey of 344 rural households (CSR beneficiaries) was conducted in
two districts of Uttar Pradesh, India. The present study follows a two-stage
approach. First, a theoretical model is constructed on the basis of a strategic
review of literature in the field of social science (social work, rural development
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and development studies). Second, confirmatory factor analysis (CFA) is

performed, followed by a hierarchical regression model to determine underlying
associations. Findings reveal that harmonious CSR has a significantly positive
impact on financial inclusion in the Indian rural sector. The moderating effect of
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financial literacy is also reflected in CSR-financial inclusion linkages. However,

income is not found to have any moderating influence on the relationship
between harmonious CSR and financial inclusion. Finally, the study is in favour
of deepening the influence of the financial institutions so that policymakers can
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make informed decisions about maintaining a sustainable economic

environment, especially in the context of the rural sector where such steps are
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desperately needed.
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Keywords: Harmonious Corporate Social Responsibility (CSR); financial inclusion;
hierarchical regression model

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JEL Classification: G21; M14; O23

Introduction
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Over the years, Corporate Social Responsibility (CSR) has become embedded in mainstream

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social relations and socio-economic practices through which an organization communicates

its socially responsible initiatives to different stakeholders (Pedersen, 2010; De Chiara and

Spena, 2011; Kochhar, 2014). This statement purposes that being responsible towards society
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and the environment is as important as any other financial or non-financial task an

organization can undertake. In most CSR literature, the role of organizations in dealing with

broad social issues such as community engagement, education and livelihood initiatives has
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been widely observed in different disciplinary domains (Chapple and Moon, 2005; Palazzo

and Richter, 2005). Similarly, financial institutions play an important role as they have a

close relationship with community members (Serrano-Cinca, Gutiérrez-Nieto, and Reyes,

2016). Prior studies in the context of banking industries have paid much attention to

examining the direct relationship between CSR and banks’ financial performance. However,
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to the best of the authors’ knowledge, no study was found that has empirically examined the

relationship between banks’ CSR and the financial inclusion of community stakeholders

(Mallin, Farag and Ow-Yong, 2014; Bihari and Pradhan, 2011).

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The benefits of CSR for banking organizations that include customer loyalty, trust,

combatting negative publicity and increased profits have been well studied (Poolthong and

Mandhachitara, 2009; Fatma, Rahman and Khan, 2015). On the community side, banks’ CSR
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initiatives to raise financial inclusion are equally evident (Bihari and Pradhan, 2011; Jain,

Keneley, and Thomson, 2015). Owing to the banks’ connectivity at a local level, their
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organizations could be seen as a way of responding to the financial accessibility challenges

so as to bring about improvements in financial inclusion (Tambunlertchai, 2018). In this

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paper, banks’ CSR initiatives towards mainly community engagement, education and

livelihood initiatives are conjointly referred to as ‘harmonious CSR’, as the study examines
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the impact of CSR beneficiaries’ perceptions of how CSR practices have impacted their

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financial inclusion behavior.

A few studies have reported that financial literacy is a key variable that positively impacts

financial inclusion (Grohmann, Klühs and Menkhoff, 2018; Sahi, 2009). However, such

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studies fail to explain how financial literacy moderates the relationship between banks’

socially responsible initiatives and financial inclusion. Evidence has revealed that most

literate people are well aware of how they can avail themselves of financial services to fulfil

their financial needs (Chibba, 2009; Okello et al., 2016). Contrary to this, Leeladhar (2012)
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has mentioned that banks should give priority to the provision of no frills accounts and ATM

cash-dispensing machines for people who are illiterate, less educated, or do not understand

financial terms. Therefore, financial literacy should be examined as a moderator of the

relationship between banks’ socially responsible initiatives and financial inclusion.

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Furthermore, this study argues that the relationship between CSR and financial inclusion

differs as per the level of income of the rural household. Accordingly, this study tests for the

moderating influence of financial literacy and income on the relationship between CSR and
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financial inclusion.

The present study contributes to the CSR community stakeholder theory by empirically

examining three CSR dimensions (community engagement, education, and livelihood

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initiatives) with regard to financial inclusion, specifically in the context of rural India.

Government and policy makers can benefit from the insights of this study to improve their
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financial inclusion practices and provide social support to rural communities. While most

previous studies examined financial inclusion with the help of secondary data, this is the first

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study to explore the CSR beneficiaries’ perspective so as to analyze their perception of CSR

and how it influences their financial inclusion behavior.

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Review of literature

Financial Inclusion: A social work perspective

Financial inclusion is seen as a development policy concern in many countries (Arun and

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Kamath, 2015; Midgley, 2005; Park and Mercado, 2018). Basically, the term financial

inclusion refers to the process of providing ease of access and availability of the formal

financial system to all members of an economy (Park and Mercado, 2016). Well-functioning

financial systems fulfil many purposes, such as offering savings, credit and risk management
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to people having a wide range of financial requirements (Demirguc-Kunt and Leora Klapper,

2012). Previous literature mentions that financial inclusion is important for reducing poverty

as it provides the poor with opportunities to build savings and make investments and equips

them to meet emergencies (Dev, 2006). OECD was also concerned with financial inclusion
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by providing the definition, “Financial inclusion refers to the process of promoting

affordable, timely and adequate access to a wide range of regulated financial products and

services and broadening their use by all segments of society through the implementation of
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tailored existing and innovative approaches including financial awareness and education with

a view to promote financial well-being as well as economic and social inclusion” (Atkinson

and Messy, 2013, p. 11). In this regard, banking organizations today are going beyond their
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regular operational activities and are particularly meticulous when considering their social

responsibility so as to increase financial inclusion. In recent studies, it could be seen that

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banks consider financial inclusion as part of their current CSR initiatives to align their

behavior with society’s expectations.

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In an Indian rural survey made in 2003 on 6000 rural households, conducted jointly

by the World Bank and the National Council of Applied Economic Research, India
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(NCAER), it was revealed that in the absence of a formal financial system, rural households

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turn to non-formal sources of finance such as money lenders (RFAS, 2003). It was found that

the interest rate at which rural households borrow money from moneylenders was, on

average, 48 percent per annum. This is very much higher than any commercial banks’

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lending rate in India (Basu, 2005). Such studies emphasized that in rural India, it was mainly

marginal farmers who were most deprived of formal financial services. Therefore, a need was

felt for banking procedures, products and services, and delivery systems to fulfil rural

people’s financial requirements.

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Harmonious CSR

In 2003, the World Economic Forum (WEF) structured a model of crucial corporate

citizenship issues around people, the environment, contribution to development, and

corporate governance and ethics. Such CSR models are the basis for the worldwide spread of
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business society relationships and are essential for a harmonious CSR implementation. The

first time the term ‘harmonious CSR’ was used was by Huang (2018) in his article The

Ideology of HeXie for Management, in which harmonious CSR was shown as an integration
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of profit, people and the planet.

Harmonious CSR derives its meaning and association from maintaining harmony

through corporate practices in return for its primary objectives of profit-making. Under
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harmonious CSR activities, the corporate world establishes a balance between its demand and

supply-side drivers. In this manner, demand drivers such as social, economic and institutional
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drivers are practiced efficiently with their discretionary powers to eliminate environmental

pressures from frequent public demands. It could be seen that sustainability and

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environmental issues are mostly attached to corporates’ core activities, whether an

organization is involved in manufacturing, retail, healthcare, mining, or quarrying. With the

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evolution of mandatory CSR practices in most parts of the world, corporates now take their

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core activities seriously and attempt to meet current sustainability and environmental

concerns to best earn the approval and support of the common people. Harmonious CSR

offers corporates a chance to use their discretionary powers without harming their own

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growth and profits and to serve the needs of society in the most efficient manner.

Harmonious CSR primarily activates with the three drivers mentioned above i.e., social,

economic, and institutional drivers. Demand for CSR as a social driver, fundamentally, is an

answer to how organizations deal with social responsibilities they have in common with
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internal and external stakeholders such as customers, employees, and communities. In the

most advantageous terms, the basic concern of CSR is to not harm the environment and to

promote sustainability. Similarly, demand for CSR as an economic driver requires CSR

activities to be focused on improving livelihood and standard of living especially through

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economic development initiatives. Demand for CSR as an institutional driver involves the

expectations of formal and informal institutions,that corporates engage in CSR practices not

just in the form of providing funds but for legitimacy, norms’ fulfilment, and to follow up
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any CSR rules and regulations, in order to make CSR practices most beneficial.

NGOs, societies and communities also take part in such informal institutional support

that concern legitimacy issues, along with the formal institutions such as governmental
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bodies and corporates themselves. Prior research has demonstrated that it is important that

formal and informal institutions spend the resources towards CSR in ways that provide
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optimum benefits to their stakeholders as well as to society (Poolthong and Mandhachitara,

2009).

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On the supply side of CSR activities, there are also three drivers that play a significant role in

adopting CSR practices. These are personal drivers, strategic drivers, and reactive drivers.
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Personal drivers that support the supply side of CSR are basically the personal characteristics

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of top managers and officials of a company, such as values, belief, and attitude. Senior

executives/managers such as CEOs, MDs, or directors are generally responsible for CSR

practices performed by the company,in that these officials are associated with initiating and

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managing such practices. Strategic drivers include the motivation or cues that focus on the

creation of ‘shared value’, maintaining harmony between corporate and societal values.

Strategic drivers help to bring about CSR activities, balancing the dependence of society and

corporate objectives in a mutually beneficial way. The last supply-side driver is a reactive
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driver that guides the supply of CSR practices performed by corporates as a reaction to the

actions of society or common people. In a more precise sense, reactive drivers are associated

with CSR practices carried out by the corporates under unfavorable or crisis situationsso as to

improve their image. There are many instances where companies have not recognized
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societal objectives and concerns in performing their core business functions and, in such

cases, if companies face opposition from the public,they turn to CSR practices to reduce the

disconnect and maintain harmony with societal concerns.

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Thus, from the demand and supply interplay of CSR, the present study examines the effect of

CSR on financial inclusion behavior in rural communities. Inspired by Huang (2018) and

based on literature keywords mapping using VOS viewer software and the Web of Science
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(WoS) database, this study operates with the three-dimensional structure of harmonious CSR
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which mainly focuses on CSR directed towards community engagement (CSR-CE), CSR

towards education (CSR-ED), and CSR towards livelihood initiatives (CSR-LI).

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Cluster Analysis of Harmonious CSR

To analyzeharmonious CSR, this study employs a co-word mapping methodology to the

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titles, keywords and abstracts of 220 Web of Science (WoS) articles. The extraction process

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has been made through VOS viewer software, which analyzes both co-word mapping and

clustering to provide a relationship network image for different keywords and their

relationships (Figure 1) (van Eck and Waltman, 2011; Young & Hamer, 2013). Three clusters

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were made on the basis of VOS viewer output: CSR towards community engagement (CSR-

CE), CSR towards education (CSR-ED), and CSR towards livelihood initiatives (CSR-LI).

Figure 2 presents the hypothesized research model which consists of six predictor variables

(Four main independent variables and two interaction terms).

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Figure 1 Co-words mapping

-ED
CSR
CEP
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HARMONIOUS CSR
CSR-CE

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-LI
CSR
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Financial Literacy as a Moderator

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Financial literacy is seen as a public policy objective to progress welfare through personal

finance-related information (Lusardi & Mitchell, 2011; Gaurav & Singh, 2012). Huston

(2010) defines the term financial literacy as the degree of understanding of the use of
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financial facts and figures among households. As per Huston’s view(2010), financial literacy

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is a valuable input intended to increase the knowledge and application of a person. While

talking about financial inclusion, some questions arise, such as: Are individuals able to

understand different financial terminologies? Do they possess adequate literacy and

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knowledge? Recently, several research projects have been conducted on financial literacy in

India (Gaurav & Singh, 2012). Jorgensen &Savla (2010, p. 465) have indicated that nearly all

young people believed that it was “important to have a good understanding of finance and
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economics.” However, despite such belief, evidence shows that the required knowledge about

finance and finance-related terms is severely deficient, especially in rural areas.

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Figure 2. Hypothesized Research Model

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Among rural individuals, financial literacy is characterized increasingly by levels of

debt, pension services, and annuities (Gaurav & Singh, 2012; Lusardi & Mitchell, 2011).

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Lusardi &Tufano, (2015) reports that levels of debt create anxiety in individuals and majorly

influence their decisions. Despite the rapid growth of complex financial products and services
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including agricultural loans, mortgages, pension schemes, and fixed deposits, rural

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communities have been largely unable to avail themselves of such services. Also, while these

products and services do offer specific benefits, they impose a serious responsibility in terms

of borrowing and investing. One aim of this study is to analyze the effect of financial literacy

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as a moderator on the relationship between CSR and financial inclusion. This study

considered the term financial literacyto refer to an individual’s ability to process financial

decisions about debt, saving, pension, and wealth accumulation.

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Income as a Moderator

Literature related to financial inclusion posit that people with higher socioeconomic status

(based on income) are more likely to report higher levels of financial accessibility than those

with lower socioeconomic status (Della Peruta, 2018; Sha’ban, Girardone, and Sarkisyan,

2020). In India, the scale of investment in rural areas is very low because of a high default
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rate and irregularities in income and, due to this, the financial inclusion is not effective in

such areas (Kaur and Walia, 2016; Gupta and Prahalad, 2011). Although, by bringing low

income people within the perimeter of the formal financial system, itthen boosts their
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financial wealth and other resources in exigent circumstances. Income, which is often used as

a proxy for socioeconomic status, also appears to influence the financial inclusion of rural

people in many countries. This paper thus also proposes a test of the hypothesis that income
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could play a moderating variable on the relationship between harmonious CSR and financial
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On the basis of the discussion above, the following hypotheses were formulated:

H1: There is a positive and significant relationship between harmonious CSR and financial

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inclusion behavior, in the context of rural communities

 H1a: There is a positive and significant relationship between CSR towards education
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and financial inclusion behavior in the context of rural communities

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 H1b: There is a positive and significant relationship between CSR towards

community engagement and financial inclusion behavior in the context of rural

communities

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 H1c: There is a positive and significant relationship between CSR towards livelihood

initiatives and financial inclusion behavior in the context of rural communities

H2: Financial literacy moderates the relationship between how CSR and financial inclusion
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are perceived, in such a way that the association will be stronger for illiterate beneficiaries.

H3: Income moderates the relationship between how CSR and financial inclusion are

perceived, such that the association will be stronger for higher-income groups.

Methodology
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Data

The population for the study comprised residents of the Noida and Greater Noida regions of

the Uttar Pradesh (UP) West and the Prayagraj region of Uttar Pradesh East in India. Several
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private and public sector banks are located in Noida, Greater Noida, and Prayagraj regions,

and these banking organizations are more likely to address the needs of the local community.

As this study focuses on community perceptions about CSR practices and the impact of CSR
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practices on financial behavior, financial institutions (banking organizations) fulfilling their

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social obligations through ethical policies and CSR practices were considered. Purposive
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sampling was used for the study. The sample has been derived from the CSR beneficiaries of

those banking organizations whose CSR practices are being carried out in the domain of

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financial inclusion. 400 respondents from UP East and UP West, India, were surveyed. For

collecting data, a survey questionnaire was constructed with the help of past research studies
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and translated into Hindi (the Indian official language) as the majority of respondents

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comprising the sample understood Hindi language only.

Table 1. Sample Profile of the respondents

Characteristics Frequency Percentage

Gender Male 196 57.00

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Female 148 43.00

Total 344 100.00
Age < 20 15 4.40
20-24 34 9.90
25-29 66 19.20
30-34 103 29.90
35-40 124 36.00
40> 2 0.60
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Total 344 100.00

Monthly Income (INR)* < 4000 138 40.11
4000-8000 103 29.95
8000-12000 68 19.77
12000> 35 10.17
Total 344 100.00
*
All income values are in Indian Rupees (INR) and exchange rate on 19 December 2019 was 1 USD equals 71.07
Indian Rupees
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During data entry, 56 responses were treated as outliers as standard deviation for all

these responses was zero. Such responses were eliminated from further analysis. Finally, 344

usable responses were obtained, the response rate being 86%. Prima facie, this response rate
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is good and similar to previous studies using the same procedure (Rettab, Brik, &Mellahi,

2009; Turker, 2009). Participation in the survey was entirely voluntary and responses were

collected during free time between working hours. Confidentiality of information and
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anonymity of all respondents were maintained. A sample profile of the respondents is given

in Table 1.
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Figure 3 First order confirmatory analysis between all the factors

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Measures and Analysis

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Existing literature emphasizes several divergent instruments for measuring community

perception of harmonious CSR. For this study, authors have conducted a comprehensive

review of literature on quantification of the community’s understanding of harmonious CSR

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(based on stakeholder perspective), considering the local community as an essential

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stakeholder category. The independent variables ‘harmonious CSR and its dimensions,

individually’ were measured on a 5-point Likert scale, where one = strongly disagree and five

= strongly agree. For measuring harmonious CSR, 6 items (2 items each for CSR-CE, CSR-

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ED, and CSR-LI) were adopted from Narwal(2007); Kuada& Hinson(2012);Idowu & Leal

Filho(2009); and Garg (2017) respectively, which measured CSR perception and its

importance. In order to measure financial inclusion, a five-item scale was adapted from

Rastogi (2018). Three items as developed by Postmus et al.(2013), were adapted to measure
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financial literacy.

Table 2. Summary Statistics of CFA with Inter-correlation and shared variances

Correlation and Shared variancea
Mean SD AVE CR CSR1 CSR2 CSR3 FINLIT FININCL
CSR-ED 3.00 0.54 0.56 0.71 - 0.52 0.46 0.04 0.34
CSR-CE 3.96 0.69 0.60 0.74 0.728*** - 0.46 0.17 0.27
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CSR-LI 3.27 0.74 0.58 0.73 0.688*** 0.680*** - 0.03 0.24

FIN-LIT 2.89 0.64 0.61 0.82 0.213** 0.416*** 0.181** - 0.19
FIN-INCL 3.55 0.60 0.56 0.86 0.594*** 0.521*** 0.490*** 0.344*** -
INCOME* 5702.77 3629.90 - - - - - - -
a
The correlations values are presented in the lower triangle matrix and shared variances are presented in the
upper triangle matrix.
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Income is measured in INR, Discriminant and Convergent validity is calculated for Likert Scale variables only.
***p<0.001.
** p < 0.010
N = 344.

To test the validity of all 14 items, confirmatory factor analysis (CFA) was performed
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through SPSS AMOS. For this set of analyses, the first-order confirmatory factor analysis

was run on all 14 items five-factor measurement scale (Figure 3).The results obtained
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through confirmatory factor analysis are χ2 (67) = 217.04 p < 0.00; CMIN/DF = 3.239, NFI =

0.900, AGFI = 0.869, RMSEA = 0.08, and CFI = 0.928 respectively. Each factor loading was

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statistically significant at P < 0.00, and values of factor loading were greater than the

suggested value 0.50, (p<0.01) (Fornell&Larcker, 1981) (See Table 3). The range of the
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scales’ reliabilities lay between 0.71 and 0.86, and for average variance extracted (AVE), it

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was between 0.50 and 0.61 (See Table 2). Following these results, discriminant validity was

measured by computing shared variance between each factor and confirming that it was

lower than the AVE (Bagozzi& Phillips, 1982). Shared variance was measured by calculating

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squared correlation between two variables (scale and measurement error for all scale items

were standardized). This supports the discriminant validity of all the factors in this study.

Table 3. Questionnaire items for the dependent and independent variables

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Statements References Mean α Standard Factor

Loadings
Harmonious CSR:
CSR towards Education (CSR-ED)

 Benefitted with the literacy programsorganized under CSR initiatives Narwal, 3.98 0.70 0.645
(2007)
 Received financial support for education 4.30 0.840
CSR towards Community Engagement (CSR-CE)
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 Treated fairly and respectfully, regardless of the gender or ethnic Kuada& 4.10 0.74 0.795
Hinson,
background
(2012);
Idowu & Leal
Filho, (2009)
 Organizations Provide opportunities for the community to actively 4.11 0.742
participate in welfare programs
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CSR towards Livelihood Initiatives (CSR-LI)

 Organizations conduct health awareness camps, free medical Garg (2017) 3.30 0.72 0.686
assistance/family planning programs
 The CSR practices have enhanced redistribution of wealth, clean 3.75 0.831
environment and social welfare
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Financial Inclusion
 Desirable to take credit/loan services from the bank Rastogi, 4.38 0.83 0.656
(2018)
 Prefer banks for borrowing rather than money lenders 4.40
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0.708
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 Preference for savings and deposits through banks 4.49 0.789
 Banking services are helpful to protect our interest and prevent us from 4.28 0.745

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the exploitation of money lenders
 Banking services provide economic and financial independence to poor 4.29 0.832
people
Financial Literacy
 Level of interest in local financial services (Saving, Credit and Interest) Postmus et al. 4.06 0.82 0.684
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(2013)
 Level of importance of banking services 3.96 0.837

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 Level of importance of investment advice 4.03 0.816

Results

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The nature of data is demonstrated through descriptive statistics presented in Table 2.

Table 4. Impact of Harmonious CSR on Financial Inclusion

Financial Inclusion
Independent Variables Model 1 Model 2 Model 3
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Step 1 Control Variable

Age .011 -.008 -.007
Gender .13 -.056 -.064
Income .020 .004 .117
Step 2 Main Effect
CSR .597** .918**
Financial Literacy .185** .534**
Step 3 Interaction Effects
CSR x Financial Literacy -.525*
CSR x Income -.129
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Overall Model
ΔR2 .004 .459** .001**
F value 0.425 58.28** 42.99**
R2 .004 .463 .473
Adj R2 .001 .455 .462

(* p < 0.050), (** p < 0.010)

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Mean scores for CSR-CE, CSR-ED, and CSR-LI indicate that CSR beneficiaries in rural

areas carry favorable perceptions of harmonious CSR practiced by various corporate entities

in their regional zones. All three harmonious CSR dimensions were found significantly
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correlated with financial inclusion and literacy, providing preliminary support for the direct
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study hypotheses. The mean value for INCOME is 5702.77 INR, and the standard deviation
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is 3629.90 indicate a wide variance among all the respondents’ income.

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Table 5. Impact of CSR-ED on Financial Inclusion
Financial Inclusion
Independent Variables Model 1 Model 2 Model 3
Step 1 Control Variable
Age .011 -.011 -.008
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Gender .013 -.083 -.088

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Income .020 -.024 -.105
Step 2 Main Effect
CSR-ED .626** .915**
Financial Literacy .229** .636**
Step 3 Interaction Effects
CSR-ED x Financial Literacy -.585*
CSR-ED x Income .077
Overall Model
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ΔR2 .010 .509** .011**

F value .425 71.20** 52.77**
R2 .004 .513 .524
Adj R2 .001 .506 .514
(* p < 0.050), (** p < 0.010)

Hierarchical regression was run to analyze the impact of harmonious CSR and its
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three sub-dimensions (CSR-CE, CSR-ED and CSR-LI) on financial inclusion behaviors. In

the first step, demographic variables (gender, age, income) were entered as control variables

in order to statistically control for their effects. In the second step, harmonious CSR (and its

sub-dimensions) and financial literacy were entered after having been standardized to a mean

score (see Tables 4-7). Finally, to test the moderation effect of financial literacy and income,
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interaction term (harmonious CSR x financial literacy) and (harmonious CSR x income) were

entered. Results of hierarchal regression state that demographic variables do not have any

significant association with measures of financial inclusion. In model one, it was found that
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demographic measures accounted for a negligible percentage of variance in financial

inclusion (see R2 for model 1 in Tables 4-7).

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Table 6. Impact of CSR-CE on Financial Inclusion

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Financial Inclusion
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Independent Variables Model 1 Model 2 Model 3
Step 1 Control Variable
Age .011 .000 .000

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Gender .133 -.038 -.053
Income .020 -.005 .290
Step 2 Main Effect
CSR-CE .548** .988**
Financial Literacy .130** .548**
Step 3 Interaction Effects
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CSR-CE x Financial Literacy -.658*

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CSR-CE x Income -.323
Overall Model
ΔR2 .004 .380** .016**
F value 0.425 42.07** 31.98**
R2 .004 .384 .400
Adj R2 .001 .375 .387
(* p < 0.050), (** p < 0.010)

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Interestingly in model 2, harmonious CSR and financial literacy together accounted

for 46.3% of the variance in financial inclusion over and above demographic variables (see

R2 for model 2 in Table 4).

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Table 7. Impact of CSR-LI on Financial Inclusion

Financial Inclusion
Independent Variables Model 1 Model 2 Model 3
Step 1 Control Variable
Age .011 -.003 -.001
Gender .133 -.023 -.033
Income .020 .027 .080
Step 2 Main Effect
CSR-LI .515** .846**
.277** .573**
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Financial Literacy
Step 3 Interaction Effects
CSR-LI x Financial Literacy -.479*
CSR-LI x Income -.013
Overall Model
ΔR2 .010 .398** .009
F value .425 45.47** 35.53**
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R2 .004 .402 .411

Adj R2 .001 .393 .399
(* p < 0.050), (** p < 0.010)

The result for moderation effects is depicted in model 3. In the present study, the beta

value for the interaction term between harmonious CSR and financial literacy was significant.
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However, the coefficient value for the interaction term between harmonious CSR and income
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was not found to be significant and, despite the addition of this interaction term, the overall
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model 3 also did not add significantly to the R2 value. Hence, the strength of the association

between harmonious CSR and financial inclusion was affected by financial literacy but not

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income. Thus, H1, H1a, H1b, H1c and H2 were supported but H3 was not supported.

Discussion
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The overall objective of this study was to examine the effect of howharmonious CSR is

perceived on rural households’ access to easy and affordable financial services. The

regression model explains the above relationship with boundary conditions of financial

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literacy and income. Despite previous studies on financial viability, competitiveness, and

profitability, there are concerns that only government or a particular kind of institution is not

sufficient to provide essential financial services to a large segment of the population,

especially the backward and economically weaker sections (Arun & Kamath, 2015; Collard,
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2007; Dev, 2006; Srinivasan, 2007). In this context, responsible and determined actions of

corporate entities are crucial, especially in a developing country like India. Studies have

revealed that besides direct expenditure in CSR practices, financial institutions had

enthusiastically engaged in financial inclusion campaigns, providing financial services to

underserved economic sectors(Hannig& Jansen, 2010; Marshall, 2004; Sarma&Pais, 2011).

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In this study, the association between harmonious CSR and financial inclusion behaviors was

proposed to be a function of rural individual differences. These arguments give mixed

theoretical support for all six hypotheses. CSR directed towards community engagement,
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education and livelihood initiatives were intended tosignificantly influence rural individuals’

financial inclusion behaviors. The findings have provided support for this proposition. The

results are in line with previous findings of (Ogrizek, 2002; Bihari & Pradhan, 2011; De La
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Cuesta-González et al., 2006)where CSR was reported topositively influence financial

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inclusion.
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The study also examined how financial literacy and income interacted with

beneficiaries’ perceptions of harmonious CSR to determine their financial inclusion

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behaviors. Results in regression model 3 indicate that the impact of perceived CSR (overall

and sub-dimensions) on financial inclusion of rural households was not contingent on their
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income levels. The interaction effect between harmonious CSR (overall and sub-dimensions)

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and income was found to be as strong for lower-income households as higher-income

households. Theoretically, it may possible that income differences restrict the level of growth

and development, however,this does not filter down to govern differences in financial

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inclusion behaviors (Engerman& Sokoloff, 2002; Park & Mercado, 2016; Park & Mercado,

2018). This is similar to the earlier studies where income has resulted in less variability for

different CSR perspectives (Mazereeuw-van, Graafland, &Kaptein, 2014; Lenssen et al.,

2006). In the context of developing economies, this is the first study of its kind to analyze the
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moderating role of income on harmonious CSR-financial inclusion linkages. Drawing on

these inferences could help future research establish the nature of the relationship between

CSR and financial inclusion.

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C EP
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5

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4.5

4
Fin_Inclusion

3.5
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Low Fin_Lit

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3
High Fin_Lit
2.5

1.5
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1
Low Harmonious CSR High Harmonious CSR

Figure 4. Interaction between Harmonious CSR and Financial literacy on the financial inclusion
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4.5

4
Fin_Inclusion

3.5
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Low Fin_Lit
3
High Fin_Lit
2.5

2
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1.5

1
Low CSR-ED High CSR-ED
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Figure 5. Interaction between CSR-ED and Financial literacy on the financial inclusion behaviour
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5

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4.5

4
Fin_Inclusion

3.5
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Low Fin_Lit
3
High Fin_Lit
2.5

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1.5

1
Low CSR-CE High CSR-CE
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Figure 6. Interaction between CSR-CE and Financial literacy on the financial inclusion behaviour

4.5

4
Fin_Inclusion

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3.5
Low Fin_Lit
3
High Fin_Lit
2.5
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1.5

1
Loow CSR-LI High CSR-LI
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Figure 7. Interaction between CSR-LI and Financial literacy on the financial inclusion behaviour
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However, there was a difference in the strength of the association between CSR and financial

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inclusion based on the degree to which rural households valued financial literacy and

believed in its importance for financial inclusion. A negative but significant beta coefficient
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for the interaction term (harmonious CSR x Financial Literacy) suggests that the effect of

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CSR on financial inclusion is stronger in the presence of low financial literacy and viceversa

(See Figures 4-7). This observation is contrary to the results of Shih &Ke(2014),

Laidroo&Ööbik(2014) and Bihari & Pradhan(2011) which have stated that people with

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greater financial literacy reported a stronger influence of CSR on their financial inclusion

behaviors. Findings of the present study suggest that rural households having lower degrees

of financial literacy are more influenced by CSR practices of banking organizations and may

respond positively to the social work dimension of harmonious CSR in the form of enhanced
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financial inclusion behaviors. Results state that harmonious CSRexercised towards education,

community engagement, and livelihood initiatives place greater emphasis on illiterate rural

households by offering them a better understanding of mainstream financial services. This is

so that rural people can become more knowledgeable and capable of assessing different

financial products and services in order to derive maximum utility. This was in support of the
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findings of all previous studies conducted on exploring the influence of financial literacy on

financial inclusion behaviors using a multidimensional CSR framework (Wong, Fearon, and

Philip, 2007; Isaksson and Mitra, 2019).

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To the best of the authors’ knowledge, this is the first study of its kind to observe the effect of

CSR perceptions on financial inclusion behaviors of CSR beneficiaries in a community

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stakeholder framework. Social responsibility has assumed a greater significance and is now

considered in terms of specific actions; it has helped in accelerating financial inclusion by

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Harmonious CSR and Financial Inclusion 25

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ensuring sufficient and visible credit facilities to rural households and agricultural and

productive sectors of the economy. Although the impact of harmonious CSR practices on the

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financial inclusion behaviors of CSR beneficiaries is shown to be positive, hierarchical

regression results indicated that financial literacy decrypts the boundary conditions of the
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relationship between harmonious CSR and financial inclusion. Furthermore, this study

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supports the major economic and social understanding theories pertaining to CSR

implementation, due to the significant findings of the association between CSR and financial

inclusion concerning the level of financial literacy. Earlier research with regard to financial

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inclusion has revealed that around 2 billion people in the world do not use banking services

which leads to financial instability in the global economy (Demirgüç-Kunt&Klapper, 2013;

Morduch et al., 2010; Klapper et al., 2015). Therefore, banking organizations must take

innovative and comprehensive action for financial inclusion through CSR endeavors.
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This study belongs to the rural Indian economy where the financial system is largely

based on banking organizations for the accessibility of financial services. Therefore, financial

inclusion in terms of financial activities, financial literacy, and access to formal banking

services by the rural society is necessary to attain local economic growth in rural areas. This

study’s findings suggest that CSR can be a major driver of financial inclusion provided that
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banks’ CSR initiatives are implemented such that they take the specific financial needs of

each rural household into account. Therefore, the government and policy makers must ensure
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that CSR policy programs should focus on efficient and effective financial services for

unbanked and poor people,especially in the rural part of the nation. Furthermore, this study’s

findings support the Indian governments’ initiatives aimed at enhancing the financial
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inclusion such as the recently launched Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme,
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Harmonious CSR and Financial Inclusion 26

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which plans to achieve financial inclusion by providing basic banking services to every

Indian citizen.

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The present research also contributes to literature on corporate decision-making by focusing

on harmonious CSR through which companies may achieve better access to the market by
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helping community stakeholders and improving their financial understanding and behaviors.

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Doing so could enhance companies’ financial performance and brand image, and increase

their access to capital for furthering their business.

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Conclusion

In this study, CSR beneficiaries were considered to be essential stakeholders as they share

many different relationships with the organization (customer, employee, and community
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member). As financial inclusion is complementary to social inclusion and both are

fundamental to the all-round development of any nation, this study considered financial

inclusion to be an intrinsic part of the whole process. Such a study has not been conducted

before. The study has also tried to establish, in the context of India, how differently or

similarly community stakeholders in rural areas perceiveharmonious CSR. The study’s

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findings, taken from a sample of 344 CSR beneficiaries, suggest that CSR activities

(especially in terms of social work) elicit a positive perception of CSR among community

stakeholders in terms of the enhancement of their economic behaviors. This is the first
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attempt by any such study conducted in the area of combining harmonious CSR with

financial inclusion. The interaction effect of CSR and financial literacy revealed that this

moderator has a significant impact on access to finance. Evidently, the effect of financial
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literacy on financial inclusion is significant and stronger when CSR is lower.

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Despite the managerial implications and practical significance of this study, it suffers from a
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Harmonious CSR and Financial Inclusion 27

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few limitations. This study has been conducted in the Indian state of Uttar Pradesh only.

Further studies could include more states so as to generalize findings and employ other

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variables such as government support, corporate reputation, and various demographic

characteristics. Future studies could also focus on other stakeholders.

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