i nc lu s i ve f i nanc e
13
Andhra Pradesh, Puducherry, Tamil Nadu and West
Bengal continue to be states with high levels of MPI,
with Karnataka displaying substantial gains over previ-
ous years. As far as MPPI is concerned among major
states, Andhra Pradesh and Tamil Nadu continue to be
at the forefront, with Kerala having registered substan-
tial increases in coverage. MPI continues to be low in
the Northern region and in the BIMARU states (Bihar,
Madhya Pradesh, Rajasthan, and Uttar Pradesh) at a value
of less than 0.5. The situation is not much better in respect
of the MPPI in these states. It is only the southern states
that consistently show an MPI and MPPI considerably
in excess of par values over the years. Among the major
states the position of Uttar Pradesh, Madhya Pradesh and
Gujarat has been consistently poor. West Bengal, Odisha,
Uttarakhand, Tripura and Himachal Pradesh are the only
major states which approach or exceed the par values
for MPI and MPPI in respect of microfinance clients
for 2014.
1.6 FINANCIAL INCLUSION DISCOURSE
IN INDIA
A key element of the current discourse in India is that it
is a bank-led government initiative. This contrasts with
many other developing countries where—in the absence
of a comparatively well-developed banking structure—
there are higher expectations from private and social
initiatives in providing the relatively limited products
of microfinance institutions. As noted by Chakrabarty
(2011), ‘as banking services are in the nature of a public
good, it is essential that the availability of banking ser-
vices to the entire population without discrimination is
the prime objective of public policy’. Financial inclusion
discourse and strategy thus involved a rapid increase in
the outreach of individual-centered banking services
through expansion of the banking infrastructure and in-
novations in outsourcing of the operations of banks.
The two planks of the commercial banks’ involvement
in the larger financial inclusion project have been (i) av-
enues for outsourcing through different types of agent
structures; and (ii) the introduction of IT-based devices
and innovations for low-cost operations and for account-
ing and MIS. Financial inclusion initiatives have invari-
ably been devised for servicing individual clients rather
than the ‘group’ methodology of SHGs or even MFIs.
(SHGs, however, can be recognized and serviced as ‘in-
dividual’ clients. Consequently the financial inclusion
discourse has focused on bank-level products and initia-
tives and the corresponding targets without any reference
to the wide range of other players, mainly PACS, MFIs
and SHGs. Interestingly, the Committee on Financial In-
clusion had projected the SHG bank linkage programme
as a main pillar of financial inclusion and urged for the
designing of an organizational mechanism that would
combine the widespread opening of the branches in rural
areas and the SHG movement (Rangarajan 2010). Nev-
ertheless, neither the SHG data nor the MFI outreach
data is being tracked by RBI to determine the extent of
inclusion.
The regulator, however, has made it clear that finan-
cial inclusion is best served through mainstream bank-
ing institutions as only they have the ability to offer the
entire suite of products necessary for effective financial
inclusion. In other words service providers like telcos
(remittance) and MFIs/SHGs (credit) who offer mono
products cannot be considered part of the mainstream
financial inclusion process as they only cater to a small
chunk of the financial needs of the population. In the
same vein, the
Annual Report 2013–14
of RBI states that
microfinance institutions and small RRBs can certainly
help in furthering access to finance. However, they can-
not on their own bridge the gaps. Well-capitalized and
robust financial institutions are needed to take up the
agenda. Banks have the ability to cross-subsidize various
product/services in an efficient and cost-effective man-
ner. Entities, such as mobile service providers, MFIs and
SHGs/SHG promoting agencies could synergistically
collaborate with banks in offering services. Such partner-
ships with banks could be a game changer for financial
inclusion.
The core elements of financial inclusion as being
practiced in India have been explained by the Governor
of RBI as consisting of five Ps—product, place, price,
protection and profit (Box 1.2). Perhaps for the first
time, the issue of financial inclusion is interpreted within
a political economy framework when he asserts that
financial inclusion is a key mechanism of public services,
especially those targeted at the poor, that could help
avoid oligarchies being created by crony capitalism.
It must be pointed out that the goal of effective finan-
cial inclusion continues to be nearly as distant as it was
