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Why Everyone Is Invited

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Globally, the subject that has produced a plethora of books is the financial crisis, where authors have a lot to tell, often being wise after the event. Back home, the buzz is ‘inclusion'. The subject has pervaded seminars, policy documents and financial literature to the extent that almost all areas of this subject have been covered in breathtaking detail. It is even more compelling for those in the financial field to write on this subject where there is firsthand experience to narrate, which can be refreshing.

Towards Financial Inclusion, authored by K.G. Karmakar, G.D. Banerjee and N.P. Mohapatra, is another addition to the literature on the subject. For the authors, being part of the National Bank for Agriculture and Rural Development (Nabard) helps. The organisation has top-of-the-mind recall on any subject to do with rural India and financial inclusion.

The authors look at both the demand and supply sides in some great detail to analyse all dimensions of the concept. They feel that the nation should achieve cent per cent coverage by 2012. In fact, they go further and explain how inclusion will also further strengthen our anti-poverty schemes and improve their implementation, especially if every family has a bank account that can be used for transferring cash credits to them.

The authors discuss an important issue. They say the formal system actually needs to recognise the vast business potential here as there is an unmet gap in this field. Therefore, we need to have appropriate products devised for it, which can then be used not just to provide services but also become part of a cogent business model. Financial inclusion should not just be looked as a moral or regulatory commitment.

The demand side story includes the need for encouraging savings in formal systems, provision of remittance facilities, addressing requirements of farmers, tribes and so on. Further, the authors extend the concept to other financial products such as micro remittance savings, credit and insurance. All this has to be reached out for the "last least and lost" to come closer to success. All banks have internally set targets on branches to be set up, unbanked villages to be covered, business correspondents to be appointed, kiosks to be set up and so on. No-frills accounts have been opened and cards such as kisan credit cards and regular cards distributed to make inclusion more pervasive.

On the supply side, the authors work on models for lowering the costs for banks and their clients. The business correspondent model is what they recommend for better outreach. Organising the farmers to take on combined liability is an option and they share Nabard's own experiences with their farmer clubs besides highlighting the Sewa model, which got in over 100 collectives. But the authors espouse the use of financial literacy as being very important in this endeavour. There is, definitely, a case of knowledge asymmetry when it comes to awareness of financial services. The case of the post offices working with banks in Uttarakhand is quite laudable. Here, India Post collects money from the people and passes it on to the banks.

On solutions, the authors do look at the micro-enterprise model and support the role of microfinance institutions to provide credit to the poor. They favour using the Unique Identification Number to hasten the process of inclusion as it addresses issues of banks. Above all, there is need for regular social audit to ensure that pro-poor schemes are well implemented and there is better accountability. They do support the banking correspondent model, counselling for inclusion, bigger role for NGOs and support to village bodies, mobile-van banking, rural credit bureaus and so on. Obviously, the technology options in this context will be enablers. The authors emphasise on the use of technology in financial inclusion. This could be the single-most important factor that can reduce the cost of inclusive banking.

The book is interesting, though difficult to read at times. It has numerous examples in each and every idea, thanks to Nabard's rich and vast experiences in this field. Also, rather than being recommendatory, it is filled with real examples for the reader to identify with.

That said, the book is written in more of a regulator's officialese with a lot of points and subpoints — much like a detailed textbook. It is, hence, a good compendium of everything on the subject for the serious researcher though it could test the patience of the layman. Having said that, this subject is not really for the layman and more for the student and practitioner, for whom it is a wholesome treatise.

K.G. KARMAKAR, G.D. BANERJEE and N.P. MOHAPATRA have worked with the state-run apex development bank — National Bank for Agriculture and Rural Development (Nabard). Karmakar, former managing director of Nabard, is the author of Microfinance In India (2008), while Banerjee has written extensively on rural development, entrepreneurship and finance.

(This story was published in Businessworld Issue Dated 02-04-2012)

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