Kuldip Maity

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.

As in the case with a business organisation, much of the problem of human civilization can perhaps be traced to the graduated dawning of awareness and the consequent understanding of required fine-tuning. In a generic sense the problem can be spelt out as the gap between the ‘what’ and ‘how’. The progress of civilization is the development from a specific state of ‘what’ through a process of ‘how’ that gets generated through a process of developing awareness of faults in the process. A process that flows from the ‘what’ as a destination. The awareness in this dynamics is a compulsion as the gaps in the process of ‘how’ creates at times irretrievable losses that force actors to be aware or create a process of awareness to generate a better ‘how’.

An ideal case in point that affects every single individual on this earth is the issue of ‘sustainable development’. By 1987, it had become clear that the way we were using the nature (how) to generate development (what) would in the ultimate analysis destroy not only what we were aspiring for but would also obliterate the entire human species.

So in 1987, the United Nations General Assembly, realising the compulsion of involving every single nation in saving the earth for us, appointed a commission under Gro Harlem Brundtland, the then former Prime Minister of Norway. The Brundtland Commission defined the target of saving the planet (what) as “development that meets the needs of the present without compromising the ability of the future generation to meet their own need.”

This was easily said than done. Take for example the issue of energy use. The developed nations at any point of time consume more fossil fuel – a non-replenishable source of energy and creator of carbon footprint – and developing nations in their quest for development need the use of more and more of the same energy source creating increasingly greater carbon footprint with its consequent impact on the depletion of nature. Similar is the case of mowing down of trees and denuding forest cover to create space for human habitation and squeezing space for other species destroying ecological balance and environment. The quest of civilization for better living thus created the killing field of our very being.

However, initially it was thought to be addressable through a top down approach with policy diktats that sought to limit the use of nature in a manner that failed to address the aspiration for prosperity of the poor. Fossil fuel, urban land and such other things required for our living were unaffordable for the poor. They needed to cut down trees for energy needs and clear land for living. So while the definition (what) was perfect the process (how) defeated the goal.

What was needed was awareness. Awareness about the need to protect the nature irrespective of the economic station of the addressees was the need of the aware as was the need for poverty alleviation steps that were in sync with the Brundtland goal. With this awareness it was realised that empowerment through education (new how) was the fulcrum to leverage nature in a sustainable way so that we do not compromise the requirement of the future generation thereby stopping the annihilation of human species.

One doesn’t play with fire as it injures and even kills and the loss is immediately understood. That’s experiential -- both received because we are taught about the consequence from childhood and may also have personally experienced the pain. But for experience to tell us how nature retaliates would take us generations and might happen when we are at a point of no return. This realisation has led the nations across the globe to scamper towards bottom up approach from top down and focus on education and empowerment. For education creates awareness of things we might not directly experience and also empowers people to fight poverty that together lead to sustainable development by meeting “the needs of the present without compromising the ability of the future generation to meet their own need.”