Promoting Financial Inclusion - United Nations Development ...

Reducing some of these constraints
would provide the much needed impetus
to financial inclusion in a market that
remains minuscule.
4. The KCC, an excellent idea from the
perspective of the user, is constrained
and ill-administered on account of the
limited interest rate (just 9% on crop
loans) earned by the banks. The margin
between the cost of funds and the
lending rate is insufficient to cover both
the administrative cost and the high risk
associated with agricultural lending.
Hence, this has led to problems in the
KCC which has low credit limits and
tedious documentation procedures.
5. There have been repeated attempts
to revive the cooperatives with cash
injections to wipe out losses, provide
training to managers, and recently also
to improve the information technology
environment. However, the real issue is
the governance of these institutions. In
order to effectively address this concern,
it will probably be more suitable to
revitalize the RRBs through privatization
thereby promoting financial inclusion.
In the context of most of the issues
discussed above, both regulators and the
government have sought to protect the
poor and adopted a restrained approach to
minimize risk. While this may be seen as
a prudential approach, embracing a more
adventurous and bold line of action is more
likely to maximize welfare implications of
the various financial inclusion strategies.
Some questions that need dwelling on are:
• Does the lack of deposit services for
the poor result in more loss of savings
through theft from their homes than
what would result from any institutional
misappropriation?
• Does the lack of cover due to an
inefficient claims management system
for microinsurance cause more welfare
losses for the poor through variable
incomes and insecurity than any claims
misappropriation by local institutions
would cause?
• Do low priced products necessarily
mean low volume availability?
• Do 120 million low income families
deserve to be financially excluded?
Perhaps the price of prudence in the
regulation and promotion of financial
services for low income families is
substantial welfare foregone. Perhaps
this price is substantially higher than the risk
associated with a bolder, more experimental
approach. It is a matter of consideration for
all stakeholders involved.
44 PROMOTING FINANCIAL INCLUSION