Inclusive finance and inclusive growth



Inclusive finance and inclusive growth are not really cousins but are siblings or perhaps more appropriately twins. Or technically speaking, inclusive finance is a necessary condition for inclusive growth. Let us look at the relationship a little more closely to clarify where we are coming from. To do that let us first see the way both are described. While inclusive growth is described as economic growth that is distributed fairly across society and creates opportunities for all,inclusive finance subsumes financial literacy and ease of access to finance.

Our position here is that inclusive growth cannot be realised without inclusive finance. Let us therefore take the description of inclusive growth first. Growth in the macro economic sense can happen without there being an equitable distribution of its fruits. Growth is nothing but a rise in the gross domestic product. In an economy where access to resources (largely understood as financial resource) is restricted to a few will necessarily lead to the growth of prosperity in a disproportionate way for the few who have easy access to resources. Those who are denied an easy access will depend on those few for their relative growth in prosperity on the willingness of the ones who have privileged access to resources to share their riches with others be that in the form of employment and a fair wage or in some other form.

In an economy where nobody is barred from investing in lawful avenues and benefiting from its returns, it goes without saying that those who have more will have greater opportunities to exploit than those who, their enterprise capability notwithstanding, have limited or no access to financial resources. It is also given that those who have more will tend to invest more in technology dependent industries as it returns higher productivity thereby restricting employment creation. And whatever employment is created through such investments tends to stay restricted in a privileged educated section. Therefore a growth in this segment adds to the growth in gross domestic product without much of a distributive effect.

Inclusive growth, on the other hand, needs a fair distribution of fruits of growth and creation of opportunities for all. This can only happen through the creation of labour intensive units creating direct and indirect employment. This can only happen if those who are starved of access to funding are provided with funding opportunity. The issue here goes a step forward. Those who have limited access to finance also lacks proper awareness to productively deploy the resource. Therefore creation of access to fund is necessary but not sufficient. What more is needed is a system to create awareness about the available avenues of funds and how best to manage their deployment. However, an informal approach towards this is not enough. It requires a structured institutional set-up like microfinance in its various avatars to directly intervene in the process – both as provider of funds and as partner in the process of imparting financial literacy. A local enterprise given easy access to funds acts both as a direct employment creator locally and by creating local prosperity also helps distribute the fruits of growth fairly.

A rise in the gross domestic product may not necessarily lead to a process of inclusive growth. For the growth to tickle down there is also the need to create economic gravitas at the base of the pyramid which can only be done through inclusive finance as an engine to create entrepreneurial capacity at the base as well.

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1 comment

  1. Indirect ways to create employment opportunities; or say, income generating avenues; include the farm processing cnters, just vaccum packaging of materials to start with, which will immediately include a large segment of farming community, and the women in their families. Instant ways of inclusive finance too as; microfinance greatly is biased towards a onsistent cash flow; this is the best way out to counter the difficulties ofmirofinance institutions as well. Support, and further support, needs to be pumped in. and a space to be created for this idea ..to take off right now

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