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- Convenor:
-
Lesley Sherratt
(King's College, London)
- Stream:
- E: Everyday inequalities
- Location:
- D2
- Start time:
- 28 June, 2018 at
Time zone: Europe/London
- Session slots:
- 2
Short Abstract:
Is there a causal link between extending financial inclusion (FI) and economic growth? Is it unequal access to FI that matters, or unequal access to the terms on which it is offered? If FI is a good, who should pay for its extension to the poor - nation states, NGOs, development bodies, the poor?
Long Abstract:
Proponents of financial inclusion point to a correlation between the economic growth of a country and the development of its financial services sector. But it is not obvious in which direction any causal link runs. Is it the fact that the process of industrialisation put money in the hand of the working classes that led to increased demand for financial services in developed countries, or is it the case that increased supply of financial services to the poor of itself generates economic growth? The case of microfinance, where after some fifty years of extending credit to the poor in developing countries some evidence might be expected, is examined.
This panel will also examine the widespread assumption that it is unequal access to financial services that is the problem that needs to be addressed, as opposed to unequal access to financial inclusion on affordable terms to the poor themselves that should be the centre of sustainable development goals.
Finally, if we assume for now that financial inclusion does provide economic growth and alleviate poverty, at least if offered on affordable terms for the poor, who should pay for this good? If financial inclusion on affordable terms is in fact a public good, who should take responsibility for its provision if it is not commercially sustainable - nation states, NGOs, development bodies, the poor?
Accepted papers:
Session 1Paper short abstract:
It is commonly accepted that Financial Inclusion is important. However, it needs further investigation to identify how it affects the poor individuals/households and SMEs. This paper explores and answers the question whether access to finance tackles inequality or aggravates inequality.
Paper long abstract:
Financial sector development is a panacea for boosting economic growth. It is a global consensus that a well-functioning financial system is indeed necessary for businesses and households to provide capital, smoothens transactions, facilitates and lowers the costs of remittance, etc. Given the great important role it plays, a lot of governments have tried to solve the issue of access to finance to some extent and made progress. However, is the improved access to credit inclusive enough?
This paper has questioned the assumption that allowing greater access to credit is essential to decrease inequality and explored in depth the contributions on the poor households and small firms. The paper argues that (1). Financial inclusion of the poor individuals has had less of an impact on inequality than is often claimed, and (2). Improved access to finance has not enabled SME growth to the extent often perceived. And lastly, the paper concludes with the policies implications to expand outreach and promote inclusion. It also reminds the bankers, policymakers, and development practitioners not to overlook the challenging factors faced by the poor when they try to achieve financial inclusivity.
Paper short abstract:
Unequal financial sector has profound implications for the rest of the economy and increased and inclusive financial development may provide more opportunities and help in reducing regional inequalities. In this study we examine disparities in financial development at the regional level in India.
Paper long abstract:
In theoretical models, well-developed financial systems can be seen to promote economic growth, remove financing constraints for firms, reduce poverty and provide new opportunities (Levine 1997; Jalilian & Kirkpatrick 2005). Less developed financial systems, on other hand, lead to entrenching of inequality, loss of opportunities to the poor and less investment in enterprise growth and also human capital development (Claessens and Perroti 2007; Arora 2012a). Unequal financial sector has profound implications for the rest of the economy and increased and inclusive financial development may provide more opportunities and help in reducing regional inequalities. In this study we examine disparities in financial development at the regional level in India. We have mainly two research questions: How do we measure the level of financial development at the sub-national level? What is the impact of unequal financial development on economic performance of the sub-national units such as the states?
To explore the research questions, our study develops a multidimensional banking development index at the sub-national level for three different bank groups - public, private and foreign banks for 25 states of India for the years 1996 to 2015. The indices suggest that financial deepening is higher in the leading regions which are high income and more developed compared to the less developed regions. An interesting finding is the improvement in index scores in the recent years for some states including those in the North East reflecting some early impact of recent drive on financial inclusion.
Paper short abstract:
Higher growth rates for lower income countries can reduce global inequality based on the theory of the catch-up effect with a similar higher level of investment-GDP ratio. The aim of this paper is to identify the role of the banking sector in achieving this objective.
Paper long abstract:
Global inequalities remain one of the major problems which are faced around the world. Although various efforts were made to alleviate it, the achievements are still far from their targets. As the concept of global inequality is very broad (e.g. inequality in income, consumption, wealth, etc.), the list of approaches and the sectors that can play crucial roles is also quite long. The aim of this paper is to identify the role of one of these sectors, the banking sector, in reducing global inequality. It is not difficult to comprehend that higher growth rates for lower income countries can reduce this problem. Based on the theory of the catch-up effect and the experience of the recently developed (e.g. ASEAN) countries, it is hoped that a similar higher level of the investment-GDP ratio can help these low-income countries to achieve higher growth rates. However, it is not easy for these countries to invest at their optimum level not only due to lack of funds but also due to various obstacles covering the banking and other sectors. It has been observed that repressive financial policies like credit controls and entry barriers in the banking sector can lead to higher income inequality (Johansson and Wang, 2014). With data from various countries, this paper shows the possible steps that the banking sector could take to remove these as well as other constraints and, in the process, help in raising the investment-GDP ratio for achieving higher growth rates in the low-income countries.
Paper short abstract:
This paper explores the theme of caste-based inequalities in the Indian credit sector using Blinder-Oaxaca decomposition to explain how much of these differences are due to the differences in the characteristics of individuals and how much is unexplained which could be an estimate of discrimination.
Paper long abstract:
Culture, tradition and overt discrimination play a significant role in the Indian credit sector. The caste system has dominated the societal landscape in India for centuries, and it is known to have a huge influence on the economic, social and political spheres of Indian people. This paper examines whether caste-based differences explain the amount of credit sanctioned to the borrowers in India. We use Blinder-Oaxaca decomposition to analyse the loan differential between castes to show how much of this difference can be explained by the differences in the returns to personal characteristics and how much remains unexplained which could be attributed to discrimination. Additionally, we investigate if these loan differentials have changed over the years using data from the India Human Development Survey collected in 2005 and 2011-12. The loan amount equations are corrected for selection and simultaneity bias using the Heckman and an instrumental variable procedure. The decomposition analysis reveals that the credit differentials between general castes and other lower castes (except Other Backward Classes) have increased over the time period considered and a major portion of these differences are unexplained. Since quantitative analysis cannot always reveal the perceptions of the people involved in discriminatory behaviour, the results of this research have been complemented by qualitative data gathered from interviewing lower caste borrowers in North India to understand the nature of discrimination and obstacles faced by them in the credit sector.
Paper short abstract:
Empowerment is largely viewed as the achievement of 'individual' women. We track 82 women over 11 years to see how their loan use has impacted their agency and status. Our findings show that the 'collective' agency of credit groups is far more important than suggested by the literature so far.
Paper long abstract:
The empowering effects of microfinance cannot be taken for granted. While some women benefit, not all do and not all to the same extent. Research suggests that women who use loans in own businesses are better able to use the leverage of microfinance to further their agency and status. How different are the experiences of women who use loans in own businesses from those who don't and can their experiences help our understanding of the processes that take women from financial inclusion to empowerment? In search of answers, we periodically track 82 women who used loans in own businesses over a period of 11 years. Our findings suggest that while most women using loans in own businesses benefit in economic terms, from the perspective of 'empowerment', it is the experience of women who start group businesses that is particularly noteworthy. Not only do group businesses survive better than individual businesses, they become spaces for collective agency. Women effectively use the business platform to bargain for better outcomes in a largely patriarchal context. Group businesses encourage group solidarity, which in turn results in collective action for better outcomes. This kind of camaraderie is not available to women who start individual businesses and have to struggle alone even for small concessions from families. So far, empowerment has largely been viewed as an individual's achievement, however, evidence from this study suggests that empowerment in credit groups may find stronger synergies in collective agency.
Paper short abstract:
This study assesses how microfinance, when advanced to poor entrepreneurs helps them to fight poverty and inequality. Findings show that if the loans are utilised for entrepreneurial purposes, both poverty and inequality can be decreased over time.
Paper long abstract:
The survey is based on direct observations and primary data gathered from semi-structured interviews of 463 client households across 11 districts in the rural areas of the province of Punjab in Pakistan. Out of these, 22 percent were engaged in 'casual work', 14 percent were working as salaried employees, and around two percent were either retired, unemployed or unable to work. The remaining 61 percent were engaged in casual labour. By running Anova tests and correlating the type of activity respondents were involved in, the study finds that those borrowers who were running some form of a micro-enterprise seemed to fare better across a number of household-related characteristics. There were visible differences when they were contrasted with those who were salaried or were involved in casual labour.
Statistically significant differences were found in terms of the assets that the entrepreneurs possessed, such as the total value of livestock, the total value of household assets and the assets per person, etc. Similarly, those borrowers who were agricultural entrepreneurs seemed to be significantly at an advantage in terms of the household expenditure on clothing and footwear (when expressed as a mean and as a percentage of income and expenditure). When measured for the quality of food consumed and the stock of staple storable food supplies held at their dwelling, agricultural entrepreneurs showed significantly better standing as compared to all other types of borrowers (and even non-agricultural entrepreneurs). Findings suggest that if microfinance is invested in entrepreneurial activities, both poverty and inequality can be decreased over time.
Paper short abstract:
How can we measure financial literacy? What is the level of financial literacy in semi-urban areas of India? Is there a causal link between socio-economic factors, family background and financial literacy? How are financial access and financial literacy associated?
Paper long abstract:
Financial literacy is the ability to process economic information and make informed decisions that impact overall well-being. The literature confirms that there is strong link between financial literacy and use of financial services. We conduct a survey with a sample size of 300 students in secondary school and higher education institutes in semi-urban areas of state of Maharashtra (India), using a rich set of questions divided into 5 categories: demographic, socio-economic, knowledge of finance and economics concepts, awareness and usage of financial services and numeracy skills. First, we evaluate the level of financial literacy in students form the age of 15 to 20, through constructing an index and computing a composite measure. Second, with the financial literacy index values as the dependent variable, we examine the main determinants of financial literacy by employing probit, logit and OLS regression models. We find, parents' education, occupation and income have a significant association with the student's financial literacy. More importantly, students with lower financial literacy tend to be less aware of and have relatively lower usage of banking products. We find that majority of students have updated information of at least the basic form of technology driven financial services like internet or mobile banking; and in some cases, have used these services. Our study elucidates associations between financial literacy, financial access, usage of financial services and socio-economic/demographic characteristics of school students and young adults, who are potential consumers of financial services. These are preliminary results as this paper's work is in progress.