The relationship between financial development and economic growth is well documented in the economic development literature. More recently, the debate has expanded to include financial inclusion as a necessary condition for sustaining equitable growth. Though financial inclusion poses a policy challenge on a scale and with an urgency unique to developing countries, it is being viewed as a policy priority even in the developed countries. This book argues the case for provision of financial services for alleviation of poverty and for overall growth and effectiveness. It also warns of the economic consequences of excluding people at the bottom of the pyramid.
Joshi explores several dimensions of exclusion. Poverty itself can threaten prosperity and lead to exclusion. The author draws attention to Amartya Sen’s critique of the standard economic approach which typically conflates well being with either money income or utility, and instead focuses on indicators of the freedom to live a valued life. Poverty is thus defined as deprivation in the space of capabilities rather than merely the lowness of income. The financially excluded are largely cut off from financial products and services due to price barrier i.e., cost of services and non-price barriers which are unsuitability of products offered, distant location, required paperwork and documentation, restrictions on access due to lack of formal address, fixed occupation and regular income. Moreover, there are high information and transaction costs of dealing with many small borrowers that act as a major disincentive for banks to provide banking facilities to the large unbanked population. Since banking services are in the nature of public good, the author suggests that availability of banking and payment services to the entire population be treated as the prime objective of public policy. Affordable credit is the next step which goes beyond the possession of a savings bank account. There is untapped business potential for aggressive banking in the rural areas but the challenge lies in locating these areas and servicing their needs through appropriate delivery channels and products. Further, the book outlines the role of banks in including women in the development paradigm through gender focus initiatives, laws, development policies and programmes and through the SHG (self help groups) revolution.
It is interesting to see how the extent of exclusion varies across States and regions. For instance, financial inclusion is as low as 27 per cent in the southern region, but it is over 60 and 75 per ...
Table of Contents >>