Champions of Financial Inclusion

Tuesday, July 27, 2010

Need for sustainability in the quest for financial inclusion

A focus on “financial inclusion” has been there in India for quite some time now. If we look back we can see examples of policies aimed at financial inclusion at various instances in the past; most prominent amongst them being the policies that were enforced in the immediate aftermath of bank nationalization and in many subsequent policies even later. So if there existed policies for financial inclusion why it is that a vast segment of our population continue to remain outside the coverage of formal financial institutions and their products and services and continue to rely on informal sources of finances like moneylenders who charge exorbitant rates of interest.

Why it is that poverty characterizes vast tracts of rural India and people there aren’t able to use the ladder of access to alternative sources of finance to escape the clutches of poverty and the social and economic shackles that a poorly performing agricultural sector has imposed up on them. Why is it that large numbers of landless agricultural laborers AND farmers continue to be dependent on agriculture despite falling wages and incomes?

The answer to this is that though the architects of India’s poverty alleviation programs had their intentions right and realized that providing financial inclusion in the form of access to formal financial institutions and their services to the most impoverished segment of the population would help them to break away from their dependency on incomes from agriculture and also liberate them from the clutches of the moneylender (principally responsible for a large part of rural indebtedness); in implementation the “financial inclusion” did not go further than increasing the number of bank branches in rural India and emphasizing on credit requirements of the rural population; most of which again went to the land owning segments of the agricultural class who were able to muster sufficient collateral.

There was hardly any focus on providing the landless laborer with credit let alone other financial products and services including savings, insurance, etc. Thus the rural financial infrastructure that came about was quantitatively impressive but qualitatively poor.

What they forgot was that the approach towards making financial inclusion a reality needs to focus on perceiving the common man at the base of the pyramid not merely as a recipient of the financial services that institutions hand down but also as an important stake holder in the entire process; one for whom these products and services are a gateway to greater freedom from poverty and underdevelopment. The focus therefore needs to be not only on the quantitative but also on the qualitative. This poses interesting questions to us today. It forces us to ask ourselves are we providing the base of the pyramid with what they need or are we providing them with what we think they need? what difference is what we are doing making in terms of providing the base of the pyramid with a greater avenue of choices to escape the poverty and impoverishment that binds them?

It brings us to the realization that when we talk about financial inclusion we should not merely talk about the quantitative but also about the qualitative. There needs to be a focus on sustainability; on providing the base of the pyramid with access to financial services and products that are designed to help bring about transformational changes within the structure of rural society and economy that will help it escape from the clutches of poverty and grow while at the same time providing adequate protection to those making use of these products and services. The task of financial inclusion will be incomplete if the common man at the base of the pyramid, who is in a vulnerable position due to poverty and marginalization is not protected and is left even more vulnerable at the end of it.

it requires us to adapt and adopt newer systems and processes to cater to the demands of different geographical, economical and social environments with the purpose of breaking restraining forces that are inhibiting their economic development and hence fulfill the objective of achieving sustainable growth that is all inclusive.

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