M. V. Nadkarni
In the struggle against poverty, financial inclusion is a crucial element. One of the main reasons why mass poverty is persisting in India is that the problem of financing the poor still remains unresolved. Availability of timely and adequate credit tailored to the needs of the poor and at affordable cost makes all the difference between survival and sinking. Financial inclusion is the process of providing this vital element. It does not mean, as the book under review makes it very clear, mere quantitative or geographical expansion of bank branches, although it certainly is an important aspect of inclusion.
As Stuart Rutherford points out in The Poor and Their Money, the poor need financial services mainly for three purposes, all of which call for equal attention. First, to defray expenses related to education, house-building, wedding, and old age security. The poor too have social compulsions to celebrate weddings respectably and so they invariably go in for loans. Secondly, there are emergencies such as serious illnesses, death in the family, and property loss due to accidents. Thirdly, there are investment needs to buy or build income-earning assets.
Traditionally, institutional finance has tended to address the last of these three types, to the neglect of the other two, even where its targeted beneficiaries were the poorer sections of the population. And this led to ironical situations like the one where the borrower felt compelled to sell off the income-earning asset he had acquired on the strength of loans. The resultant trust deficit percolated even to production loans.
The deep distrust banks have traditionally shown towards the economically weaker sections particularly in the matter of giving consumption loans stands in sharp contrast to the fierce competition they get into while extending credit to the affluent for buying, say, posh houses and luxury cars. Inevitably, the poor were pushed into the stranglehold of the private moneylenders and made to wallow in perpetual poverty. The expansion of cooperative and corporate banking networks, though impressive, hardly contributed to financial inclusion because it was oriented towards meeting production or business credit. Nor did unsystematic and politicised shows like ‘loan melas' improve matters. In this sombre milieu, some light emerged in 1974 around the same time from Ela Bhatt's SEWA Sahakari Bank in India and Muhammad Yunus' Grameen Bank in Bangladesh. Their unconventional approaches to providing micro-credit spawned many micro-finance institutions (MFIs) and Self-Help Groups (SHGs) in many countries. Financial inclusion and, along with it, women's empowerment took a big leap forward. This in brief is the backdrop to the ongoing efforts at financial inclusion in India.
The book under review has the merit of being authored by persons who, by virtue of holding senior positions in NABARD — an institution that played a crucial role in expanding and deepening financial inclusion — have had the advantage of closely observing and even participating in the process, and gaining access to the findings of field surveys and the official data based on them. It not only presents in detail the role played by the main actors but also draws upon the experiences of other countries in this regard. Not surprisingly, the book is highly informative and should serve as a useful guide to what has been happening and, more importantly, what needs to be done.
The authors make out a strong case for seeing financial inclusion from a much broader perspective and argue that the objective should include meeting not just micro-credit needs but also micro-insurance to cover emergencies, besides providing regular pension by way of old age security. This demand side analysis is presented in general terms as well as with particular reference to farmers and tribal people. As for the supply side, they look at different models of providing financial services such as Business Correspondents and Facilitators; the Regional Rural Banks; and the Post Offices. It is to the credit of the authors that they have refrained from exaggerating the achievements and focussed more on the unfinished task.
I wish, however, that they paid more attention to the studies done in India to assess how far the financial inclusion initiatives have actually helped the beneficiary households to lift themselves above the poverty line and make their livelihood more sustainable, particularly whether the Dalit households in rural areas have been adequately covered.