Kuldip Maity

Demographic transition in India and the issues involved are no longer of just academic interest. The impact of transition is now being felt everywhere so much so that it has even cast its shadows on the poor households.

To consider the impact it has on the poor elderly let us take a look at a survey that has become a point of reference for discussion on the demographic change in India. The human development survey conducted by the NCAER says that 45 per cent of the rural males and 75 per cent of the rural elderly women depend completely on others for living. In short, the family is the major pension and health insurance for the poor elderly in India.

However, with the increasing urbanisation and the intense desire to escape the clutches of poverty the young are leaving their nest in droves in search of employment elsewhere leading to a shift in the family dynamics of the poor. The joint family structure and along with it the support structure for the poor is threatened as a result. To note in passing, the joint family structure in India survived the longest in the world and looked after the elderly in the family. Therefore there was hardly any thought to provide for themselves as they grew old. Secured in the knowledge that by looking after the family now, they will be looked after by the family in turn when they grow old, there was hardly any compulsion to look for alternative channels of support for a time in the future when they would be out of actively earning stage. Now it is predicted that by 2050, 21.6 per cent of the population will be above 60 years old. Add the rising level of life expectancy to it and we are left with an elderly population without any health or old age income support of consequence.

As it is, pension coverage in India has a lot of scope of improvement. With just about 7.4 per cent of the population covered under any pension plan we can well imagine the intensity of the problem and the shape it might take in the near future. To counter this trend by taking advantage of the government encouragement to address the issue on a war footing, microfinance industry has a huge role to play here. It is now a reasonably accepted fact that the microfinance initiative is providing an increasing traction to financial inclusion by building financial literacy and providing access to fund to the needy. However, time has come for the industry to expand its product range by including health insurance and pension products for the aspiring poor – to those who are taking advantage of the microfinance – in a manner that would meaningfully address the emerging threat of a huge number of uncared for elderly population. A start towards this direction could nest in popularising micro insurance products.

Financial inclusion as a mission is at a crossroad. The equation that defines the process of inclusion is stated to be as follows Financial inclusion = financial awareness + access to finance.

The roadblocks to the process of inclusion have so far been the access to the deprived section of the people by the financial institutions. There have been various reasons for that. And the globally accepted one is the inability of the traditional channels to satisfy the needs of the poor due to the way they are built to function.

Necessity is the mother of invention as they say. The most effective way was hit upon in Africa. The villages there are not only inaccessible in some parts, but even if they were accessible, due to preponderance of theft, in parts of the continent, it was not even safe to carry cash across the street.

The challenge there led to the evolution of the digital wallet. It not only revolutionised the transaction system in Africa by extending the wallet to transfer to the remotest corner of the African states making life easier. Gradually it evolved into a number of financial transactions, including remittances and micro credit.

It turned out to be a game changer in the fight against financial illiteracy. World Bank became a big advocate of digital financial reach and India jumped into the band wagon. Fortunately now the penetration of digital technology is reaching out to the unreachable very fast. With digitization, it is becoming easier to reach the left out segment with financial products. Now let us get back to what we started with. The financial inclusion model has awareness as an essential and necessary condition. Unless the deprived ones are aware of the access, availability of products is of no use.

As we have already mentioned in passing about the failure of the traditional financial channels to take the inclusion model forward due to their structure, the role of microfinance institutions become so important. The microfinance institutions by the very nature of their activities interact with their customers individually. The handholding of the clients necessitated by the way loans are given out and risk minimised requires of them to educate their customers in financial ways. The step in the process is of course for the industry to embrace the technology and use it to gain deeper penetration.

In a new India that is poised at a point of inflection, microfinance institutions are also transforming themselves by adopting to the scopes being opened up by the digital technology and become more effective.

In the literature dealing with poverty the proposition that the uninsured risk has significant welfare cost not just in the short run but also in the long run by perpetuating poverty has taken up almost an axiomatic character. The fact that it has done so does not require a deep mind to reflect on it if we take some time out to think through the way the poor live and the consequent risks they are exposed to.

The poor are generally exposed to two types of risks. One of course stems from the personal level like illness, unemployment or theft of meager savings. Then there is the macro level risk like drought, flood or recession affecting earning capacity. All these have significant welfare implications by creating road blocks in the way of alleviation of poverty.

The poor tend to create their own risk hedging or trading off mechanism. The most common one that comes to mind to anybody is stashing away of cash for the bad time to come. A very unproductive no-return strategy as the surplus is hoarded whereas an investment with that amount might have provided some return to add to the surplus already generated.

There are other ways and all of them have a huge welfare cost to the society. For example, the way the deprived ones hedge against unemployment is debilitating in terms of welfare cost. To hedge against unemployment the poor tend to engage themselves in multitude of employment options so as to create a bouquet of earning sources. What it leads to is a cost to the society as it loses the best productivity option of its members. It also in the ultimate analysis leads to lower earning for the poor thus pinning them down to the vicious circle of poverty and reduces their ability to generate surplus.

The only way out for them is to go for the financial hedging against such risks through insurance. The poverty alleviation policy of the government also recognises it. But to take it down to the bottom of the pyramid needs the active involvement of the microfinance institutions. Given their level of individual level interaction and understanding of the needs of the poor, they can bring the segment concerned on board through awareness building and providing them with the exact product to satisfy their individual need thus closing a big gap in the financial inclusion.

‘Roti, kapda aur makan’ was the original development slogan encapsulating the poverty alleviation programme in India. It has now changed to ‘bijli, sadak aur paani’. But the essence of the development strategy hasn’t really changed. What has changed is the vehicle of delivery that will generate ‘roti, kapda aur makan’ for the underprivileged.

To look into the rationale of why ‘makan’ or the housing for the poor might actually be the answer to their quest for financial shelter along with ‘roti aur kapda’ let us first look into the reason behind the change in the development slogan.

If we look at the first, it is clear that the slogan specifies development target and fails to identify the route to achieve that. The second, on the other hand, identifies the route.

Electricity, road and water together create the basic infrastructure for livelihood generation.

The logic here is simple – if we can provide the poor with market access, selling their enterprise and labour, to that extent, becomes easier. But market access is not enough. To leverage market access one also needs access to finance so that they can fund their enterprise to turn their labour into marketable product.

This is the point in the chain where microfinance companies and affordable housing enter the picture.

With more than 90 percent of the poor lacking proper shelter, access to affordable housing is dire. Add the fact that for the poor house is where the production takes place, the issue of housing takes up an extra dimension in the fight against poverty.

Housing for the poor is more often seen as just a house. But if we look at their housing need beyond the need for a shelter, as it has been argued here, we clearly see that it is also an empowering infrastructure to boost their productivity. Microfinance institutions have the access and the necessary skill to evaluate and minimise risk of credit to the poor. Given this skill and the government’s focus on creating access to affordable housing, microfinance can go a long way by adopting housing loan as a product to create financial shelter for the poor.