Book Review – A Reader on Financial Inclusion

Francis Bacon said some books are to be tasted, others to be swallowed, and some to be chewed and digested. “A reader on Financial Inclusion” by Dr Moin Qazi belongs to the last category. The language is simple and jargon-free, and the terms used and concepts are well explained. But the reader would be required to go rural mentally or climb to the bottom of the pyramid to understand the full import and grasp the subject. In this sense, the book needs to be chewed and digested. This book on Financial Inclusion is an excellent example of “Literary Inclusion” as well. Every conscious citizen would, I feel, like to read it.

A Reder on Financial InclusionAt the outset, the author defines – “Financial Inclusion as the philosophy of providing affordable, safe, accessible, sustainable and properly regulated financial tools delivered responsibly so people can build their assets while improving their livelihoods”.  The author observes that India is undoubtedly on the cusp of a vibrant financial revolution and is poised to make full financial inclusion a reality. The JAM (Jan Dhan Yojana, Aadhaar and Mobile number) trinity reshapes the economic landscape. The digital platforms have enabled the most significant reforms ever attempted in India – direct subsidy transfers.

The next step is microfinance, which is a double-edged sword. Debt has the most significant promise and, perhaps, the gravest peril. Financial markets are flooded with agents who hawk a bewildering array of products with highly aggressive sales pitches.   The borrower should first examine if he is sure to earn a return higher than the interest cost. Products attuned to rural realities and uncertainties must be developed by leveraging technology. Traditional credit assessment using debt-equity/ current ratios should be replaced with credit scoring models drawing info from various data points like bill payment history, remittance/ transaction records, etc. As microfinance clients have little or no collateral security, the concept of “social collateral” built through groups of borrowers guaranteeing each others’ loans (like in Self Help Groups) is a must. The importance of savings to avoid a debt trap has been well explained. Microinsurance products must also be provided cheaply to enable them to tide over medical and other emergencies and natural disasters. Another essential matter to be considered under the umbrella of Financial Inclusion is Financial Education, which is an intelligent investment.

The book explains the emergence of a new stream of lending called housing microfinance and highlights the differences with classifiable housing finance. New ideas, such as acceptance of paralegal or circumstantial titles to the property instead of highly perfected security, are encouraged. The finance offered is small loans for “incremental build”, and repayment is phased as per activity (not EMI). Based on the repayment performance, new loans are given over time as the requirement and repayment capacity increase. This is a departure from the classical one-time home loan in urban areas repaid over decades.

Francis Bacon is considered the Father of English Essay as he wrote some earliest forms of essays, which helped establish the essay as a recognized literary genre. The present book is also a collection of essays, each delving into topics related to Financial Inclusion. The essays cover a plethora of issues from goats to gadgets, bullock carts to mobile phones, ancient sloughing techniques to Artificial Intelligence, historical perspective, the interplay of various agencies, institutions, government, banks, regulators, central bankers, service providers, insurance companies, covering virtually the entire gamut of factors affecting Financial Inclusion.  The book draws ideas from various sources – writers, thinkers, Nobel Laureates, economists, RBI Governors, and some landmark Judgments.

Simple realities of village life, such as the villagers losing a day’s wages for visiting the Bank, are also reckoned and solutions suggested, such as the strengthening of the BC model (Business Correspondent – akin to an Agent), which enables penetration without incurring the cost of opening brick-and-mortar branches. To cite another example of rural hardship, if a person falls sick, apart from the medical expenses, there is also a loss of wages as most villagers have a hand-to-mouth existence.  Could micro-insurance address these needs as well? The author, being a hands-on operator, the solutions to various problems and suggestions for improvement are spelt out casually in the essays, and you have to be an attentive reader to perceive the solutions. At times, the author provides solutions in bullet points which are very practical, eminently doable, non-disruptive and long-lasting, aimed at creating a new sustainable growth path where “Jugged” is no longer needed. The chapter on Moneylenders is an eye-opener analyzing how the pernicious species continues to flourish stubbornly, gripping the farmers in an inescapable debt trap. Timely and hassle-free credit by banks and microfinance institutions is the only counter.

The effect of technology on Financial Inclusion is dealt with in great detail. Artificial Intelligence, virtual reality, block-chain, cloud-based software and machine learning provide the mantras to financial institutions to power them with limitless reach. Fitch can evolve space-time solutions by moving money to the present from future and from urban elite to rural poor. Fully digital banks are gaining traction. Digital Financial Inclusion has been propelled to new heights during the last decade with innovations like NPCI, NFS, Repay, IMPS, Apes, DBT, UPI and Bharat QR Code. However, millions of people live in villages still are happy with a technology that is hardly more sophisticated than a bullock cart and a plough. Government should do more to improve rural infra, electricity availability, mobile connectivity, cheap and easy-to-use handsets, etc, to bridge the digital divide.

The stellar role played by women in Financial Inclusion has been highlighted. The success of Self-Help Groups is primarily attributed to the wholehearted participation of women in the movement. The author observes that in the rural scenario, women are a low-revenue segment because they prefer small-ticket low-cost products. However, when treated with respect, they are loyal and profitable clients and offered appropriately designed products. They may be more risk-averse than men and take longer to make decisions, but they make firm decisions, and when they do, they tend to be more trustworthy and reliable customers than men. However, women remain a vulnerable section as they have hardly any assets except gold and run the risk of their investments and loans being effectively managed by men. Financial inclusion of women, therefore, warrants a more nuanced approach with stress on financial literacy.

The author acknowledges the critical role played by Public Sector Banks, which have emerged as a one-stop shop for all the financial needs of the rural populace. But the journey has been far from smooth. Bank nationalization was followed by reckless branch expansion and the launch of various schemes, which failed miserably as they were not conceived at the grassroots. The IRDP was one of the world’s largest and most ambitious programmers for alleviating poverty. However, it ended in utter failure. “The entire execution lacked the soul of a genuine economic revolution because it was the brainchild of starry-eyed mandarins who picked up bits and pieces about Financial Inclusion from pompous new-fangled and half-baked ideas generated at seminars and conferences. The final nail in the coffin was the official loan waiver of 1989, which destroyed whatever semblance of credit discipline remained.” – Powerful words. Over the decades, it became clear that working for people with low incomes does not mean indiscriminately thrusting money down their throats.

In contrast, the latest government programmed for rural development is the National Rural Livelihood Mission (NRLM), launched in April 2013. NRML aims “to reduce poverty by enabling the poor households to access gainful self-employment and skilled wage employment opportunities, resulting in appreciable improvement in their livelihood on a sustainable basis, through building strong grassroots institutions of the poor”. Thus it is seen that Financial Inclusion is no new idea or philosophy. It is only that it has been retrieved from the economic backwaters and resurrected for readers,

Jayant  Bijapurkar is a former senior banker who has served for three years in overseas assignments and has been closely associated with financial inclusion activities in rural India. He has associated this book which Moin Qazi has authored

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