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Settling The Inclusive Account

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Today, in almost all seminars on banking, talking about inclusive banking has become axiomatic if not a fad. Maybe after a decade of competitive banking, where banks have focused on return on capital and return on assets, somewhere inside is a feeling of guilt that the poor have been left out. It is not surprising that bankers spend a lot of time talking on how it is necessary to bring about inclusion and policy makers go a step ahead and relate the same to inclusive growth.

But what exactly does this financial inclusion mean? Have we really made any strides here? Thingalaya, Moodithaya and Shetty attempt to address these issues in their book, Financial Inclusion and Beyond. Thingalaya, a banker-academic obviously has the advantage of personal experience on the subject.

Inclusion basically means having access to a bank account, bank facilities such as remittance, credit, financial advice and probably insurance. The authors look at demand and supply side factors in this context. On the demand side, they point out that awareness, interest rates, need for collateral, social status and information asymmetry (where some get to know more and some less about defining issues) may actually be keeping potential borrowers out of this framework. The supply factors that make banks reluctant to lend are almost mirror images such as insistence on collateral, limited access to all villages, procedures, language and staff attitude.

Then they examine different parameters to gauge inclusion, which is a bit cumbersome given the limited availability of data. Population per branch or accounts per population size are the ones normally referred to, while there are extensions such as loans given based on occupation, status, etc. Of late, the concept of no-frills accounts has caught on, which helps the un-bankable people to access banks. A lot of data from the National Sample Survey is used here, which, unfortunately, tends to be dated in the current context.
The authors have carried out a survey on financial inclusion in four districts—Anantpur (Andhra Pradesh), Madurai (Tamil Nadu), Udupi (Karnataka) and Kasaragod (Kerala). The survey throws up some results and there is reason to believe that Tamil Nadu is a kind of laggard in terms of inclusion. Some of the thoughts that emanate from the study are that men are covered relatively more than women; religion, perhaps, does not matter; education plays a role in all states except Andhra Pradesh, while ownership of land has a positive correlation with access to banks. There is, however, no clear relation with occupation. Further, some of the reasons for exclusion are awareness or low comfort. An interesting finding is that around half the respondents were left out voluntarily, meaning they were not really interested.

Looking ahead, the authors suggest that to improve financial inclusion there should be more points of contact to begin with. Second, the concept of a financial supermarket, Gramin Vikas Soudha, should come up, where a villager gets not just finance, but also other farm inputs and daily-use items. Third, credit should be a part of any development plan undertaken by the government right to the panchayat level. Lastly, there should be a lead district manager who should be in charge of such an initiative.
The book does not make suggestions much different from what we read in the speeches of bankers. But it is always good to have everything in one place. As one of the authors was a banker, the book should have touched on other banker's perspectives such as banks' reluctance to experiment, administrative hassles in lending, creation of non-performing loans, impact of such lending on profit margins, etc. Given the problems that microfinance institutions face today, this would have added value. A survey of bankers would have helped in this context, as it would have provided the other view on why inclusion is still a mirage in our society.

After all, banks are commercial units. They have to deliver profits and cannot be run on philanthropic grounds. Covering these aspects would have added some zing to the otherwise matter-of-fact approach taken in this book.
The Academic Foundation, which provides a channel for such research projects, should encourage authors to make their books argumentative and represent both sides, or else such books would have a restricted academic audience, which should not be the case.

Authors' Details:
Former chairman and managing director of Syndicate Bank, N.K. Thingalaya  is a professor emeritus at Justice K. S. Hegde Institute of Management (JKSHIM) in Karnataka. M.S. Moodithaya is director and professor in international business at JKSHIM. An agricultural economist formerly with the Commonwealth Secretariat, N.S. Shetty is also a professor emeritus at JKSHIM. He has also served the Development Bank of Zambia.

Sabnavis is chief economist at CARE Ratings

(This story was published in Businessworld Issue Dated 28-11-2011)