2012年7月31日 星期二

Financial Inclusion and Poverty Reduction

2.0   CONCERNS ABOUT POVERTY

 As we got ready to complete the first half of the decade of the 1990s, growing concerns about poverty stood out in political agendas all over the industrialized and the developing worlds including Zambia.

 

The stubbornness of poverty, even in the richest of nations, is being met with increasing impatience, and governments of diverse ideological persuasions are trying to do something about it, while donors and other international agencies have been rushed into offering their support to these efforts. This has even been hastened by the deepening global financial and economic crisis that is sweeping the entire globe.

 

 But, from good intentions to actual successful remedies there is a long way. Thus, both conceptualizers and practitioners are once again looking for operational approaches to deal with poverty. And so, the old question of credit extension re-emerges which hinges on financial inclusion.  Financial inclusion plays a critical role in reducing poverty. But with this financial crisis blowing across the globe is financial inclusion possible?

 

Cross sectional data have shown that people with access to credit have less incidence of poverty. As we well know, the extent to which the reduction of poverty and/or the alleviation of its consequences has been a public policy issue which has differed significantly across countries and over time. In Zambia, for example, poverty was at the top of the nation's agenda during the preparation of Poverty Reduction Strategy Paper which saw the country qualify to Highly Indebted Poor Countries Initiative program steered by the International Monetary Fund. One of the key issues considered in this paper was access to credit.

  

Further, in the early 1980s, not only was poverty merely one of several explicit policy concerns, but many chose instead to highlight the counterproductive nature and high fiscal costs of some of the poverty alleviation programs that had been adopted earlier.

 

More recently, as we move into the 1990s, public attention has focused again on the potential role of both government and of the publicly-supported non-government organizations (NGOs) in directly alleviating the continuing plight of the poor.

 

Three decades ago, as new programs were being introduced and old programs were being

expanded, an optimistic view prevailed. The belief was that if stable economic growth could be maintained, government actions could actually solve the poverty problem if only sufficient resources were devoted to the task (Danziger and Weinberg).

 

It is against this backdrop that some countries have come up with a deliberate vision of promoting sustainable financial service providers to the unbanked nationals with emphasis on the provisions of low interest rates.

 

3.0    FINANCIAL INCLUSION AND POVERTY

 

In the letter of transmittal of the 1964 Economic Report of the President, President Johnson announced: “We know what must be done and this Nation of Abundance can surely afford to do it” (Johnson). Soon optimism was followed, however, by a diminishing faith in the government's ability to solve any problem (Aaron) and by strong arguments that social problems cannot be solved by “throwing money at them.” This is one of the perceptions that led to promotion of the private sector, but with the recent economic crisis, we have seen the USA Government increasingly taking up its role that was negated to the private sector.

 

 Despite this skepticism, in the 1990s the pendulum of public opinion has been swinging

back and new initiatives to address the challenge of poverty are being proposed. In general, among these recent initiatives, specialized credit programs for the poor are

becoming increasingly popular (Jordan; Minsky et al.). As many believe that a more effective design of the poverty alleviation programs would prevent their earlier shortcomings, it becomes critical to identify lessons learned from earlier experiments. What do we know about more effective program designs? As experience accumulates on the performance of credit (and of  Income from a country, Costa Rica, where these objectives of renewed growth with improved social conditions are being achieved quite successfully, and thus we are optimists about well-designed structural adjustment programs). Hence the need to encourage microfinance institutions so that many people will have access to credit any time they need so. This is how financial inclusion can be promoted in poor countries.

 

 There are legal requirements that a financial service provider needs to adhere to before a license is granted to an institution. However it is the deliberate policy of most central banks to relax some of these legal requirements so as to maximize the numbers of the players in the market, especially those whose operational objectives is to serve the unbanked. In this case, this will positively affect one the fundamentals of economics, demand and supply. Once there are more financial service providers, this will subsequently increase competition, leading to fall in interest rates, the price of money.

 

Further there is need to come up with other programs explicitly designed to assist the poor, in this regard there is need to take stock of all antipoverty policies that have worked and which have not. We need complimentary policies that will support on the promotion of financial inclusion. The Government should come in and come up with fiscal policies that will lessen the hurdles that applicants in financial service face. The tax regime should be favorable to all players in the market whose objective is to serve the poor people. In this case, in addition to encouraging formal financial service providers, the country will promote informal players as well.

 

 A substantial abode of experience (positive and negative) on credit programs for the poor has been accumulated in low income countries. Many of the lessons learned are relevant for any country wishing to pursue this deliberate policy. The evolution of public policy has not been different in other developing nations, where poverty is so conspicuous. Leaving behind the “basic needs” paradigm of the 1970s, for most of the developing world in the 1980s were a “decade of structural adjustment,” dominated by stabilization efforts designed to bring national expenditure in line with national income (or output) as well as by attempts to increase national income, through policy reforms that have promoted a more efficient use of resources (Grootaert and Kanbur).

 

There is a strong professional consensus that these adjustment programs of the 1980s were successful in moving many countries toward internal and external macroeconomic balance. With the attainment of this objective we need to avail all the credit resources that the poor desperate need. The debate is intense, however, about whether these objectives could have been achieved “while better protecting the poor and providing the basis to incorporate them in the growth process.” However, let it be emphasized that, this is not the place to solve this issue. To begin with, establishing causality between specific policies and the evolution of the standards of living of different socio-economic groups is a particularly difficult exercise. This is also the case, of course, of attempts to establish the impact of credit programs on final beneficiaries (Rhyne). In the case of structural adjustment efforts, in any case, the outcome depends strongly on the initial conditions a nd on the types of policies adopted.

 

In any case, regardless of whether the observed poverty outcomes of the 1980s stemmed

from past policies which militated against growth or from the adjustment policies that inevitably followed as the earlier strategies failed (Morley), there is no doubt that both low-income country governments and international donors have been increasingly concerned with poverty alleviation.

 

There are two dimensions to this preoccupation.

 

A first type of concern relates to the need to achieve growth with equity over the long term. This requires policies and programs that foster the participation of the poor in the process of economic growth, by creating employment opportunities and by increasing their access to income-generating assets; and by raising the productivity of their assets, both physical and human (Grootaert and Kanbur). We believe that, if efficiently provided, financial services may play an important role in this task of incorporating (some of) the poor to processes of economic growth in most poor countries.

 

A second type of concern relates to the need to mitigate the transitional cost of adjustment for the most vulnerable groups of society. We believe formal financial services can play a very limited role in this effort, if any. Other fiscal mechanisms provide a more cost-effective approach to assist those unfortunate who have no productive opportunities and, therefore, no debt capacity. The use of credit in this case carries an excessive social cost and is easily counterproductive, as one would not want to burden the unviable with additional debt they cannot repay (Adams). In dealing with these (poverty) issues it is always difficult to bridge the gap between moral obligations, calling for private and public charity, on the one hand, and the economic requirements that could improve the lot of the poor, on the other (Schultz). It appears, nevertheless, that financial services can have a sustainable economic role only in the second case. In this case it is our desire that to encourage more players in informal financial services, any country and regulating authorities need to relax some requirements on governance and prudential issues when the opportunities for improvement do exist. To understand why this is the case, one needs to appreciate the nature of finance and the importance of its economic contributions as far as economic development, particularly poverty reduction is concerned.

 

4.0   FUNCTIONS OF FINANCE

 The financial system is a key component of the institutional infrastructure that is required

for the efficient operation of all markets. The most important contribution of the financial system is its ability to induce a larger size and foster a greater degree of integration of the markets for provision of goods and services, factors of production, and other assets. This expansion of markets is a precondition for powerful processes of division of labor and specialization, greater competition, the use of modern technologies, and the exploitation of economies of scale and of economies of scope. As already noted by Adam Smith, these are the processes that increase the productivity of available resources and lead to economic growth. With economic growth there are multiplier effects that spill off to poverty reduction.

 

The expansion and integration of markets is achieved through the provision of monetization services and the efficient management of the payments system, the development of services of intermediation between surplus and deficit economics agents, and the establishment of opportunities for the accumulation of stores of value, the management of liquidity, and the transformation, sharing, pooling, and diversification of risk (Long). Particularly important are the services of financial intermediation, which transfer purchasing power from agents with resources in excess of those needed to take advantage of their own (internal) opportunities (surplus agents, such as savers), to those with better opportunities but not enough resources of their own (deficit agents, such as investors). This is critical for financial inclusiveness. By making this division of labor between savers and investors possible, financial intermediaries channel resources from producers, activities, and regions with a limited growth potential to those where a more rapid expansion of output is possible.

 

Since there always are more economic agents who claim that they have superior uses for

resources than there is purchasing power available, financial markets must contribute to the selection of the best possible uses of resources. These markets can also offer monitoring services, ensuring that funds are profitably used, as promised, and they can contribute to the enforcement of contracts, making sure that those who have borrowed repay the loans (Stiglitz).  This is where regulators such as central banks come into play. After all, finance is about promises to pay in the future that are expected to be fulfilled. If this is not handled properly the consequences are disastrous, like the current economic crisis that has its roots in poor regulation of the financial sector. The conditions of such repayment influence, in turn, who bears what risks.

 

 We cannot sufficiently emphasize the extent to which the efficient provision of financial services is extremely critical for the operation of the economy at large. Because financial markets essentially influence the allocation of resources, Stiglitz has compared them to the “brain” of the entire economic system, the central locus of decision making: if they fail. . .the performance of the entire economic system may be impaired. Why this is the case is a complex question, but if it is indeed so, there is clearly a major social interest at stake here. Most governments have recognized this and many have gone to extremes in order to prevent a collapse of their financial systems. Frequently, however, while recognizing but (mis)understanding their powers, governments have intervened in financial markets, in the pursuit of a varied range of worthy nonfinancial objectives, but with negative consequences. We need to think through as regulators therefore to mitigat e this competing needs of positive and negative consequences when coming up with financial inclusion vision.

 

5.0   FINANCE AND POVERTY: LESSONS FROM THE PAST

 A good number of the initiatives to directly assist the poor with financial services (may)

fall under this category of unsuccessful interventions. In considering such interventions,

moreover, a key question to address is their potential cost in terms of the reduced efficiency of the financial system at large. This is a cost that it might be worth enduring, if the expected benefits were sufficiently large. Unfortunately, this is typically not the case, given the very nature of financial markets.

 

According to Gonzalez-Vega this is one of the most important lessons learned from earlier attempts to use formal financial markets to ostensibly promote particular activities, to compensate producers for other repressive policies, to free them from the grip of moneylenders, or to redistribute income towards the poor (Gonzalez-Vega 1993). The subsidized interest rates and administrative loan allocations through targeted credit programs, used for these purposes, did not displace informal sources of financial services and hardly promoted anything. They only redistributed income, but in reverse, from poor to rich (Gonzalez-Vega 1984). So, despite the best of intentions, they frequently turned out to be harmful for the particular segments of the population (marginal clientele) they had been set out to help. As a country, therefore we need a concise visionary action to avoid redistribution of income from the poor to the rich. This is common where commercial lend ers with the high pegged interest rates are targeting the poor exploitatively.

 

These outcomes are well known and have been extensively documented for dozens of

countries (Adams et al.). Too much effort was spent in small farmer credit programs, for

example, to obtain meager results. The primary objective of increasing the farmers' access to formal credit was poorly met and a reduction in the cost of borrowing was achieved only for a few larger borrowers in most poor countries. Despite artificially low interest rates, formal credit did not become cheap for small rural producers and most credit portfolios became concentrated in a few hands.  Even in stagnant economies, nevertheless, finance plays a role in consumption smoothing. This role is frequently performed well by informal financial arrangements (Udry).

 

More importantly, these government-sponsored credit programs distracted attention from technological innovation, infrastructure development, and human capital formation, which directly increase the productivity of resources. Finance, instead, can only contribute to this goal indirectly, by making it possible for some to take advantage of the opportunities created by those other growth-inducing processes. In the absence of such opportunities, however, there is only a limited role for finance to play.

 

There is an increasing body of evidence confirming that economic growth and reductions

in poverty go hand in hand. Clearly, a substantial improvement in living standards requires economic growth (Biggs et al.). Further, securing full participation of the poor in such process is a long-term effort and it involves improving their employability, expanding the educational opportunities for their children, improving the performance of labor markets, creating a hospitable environment for their productive activities and much more. An efficient provision of the financial services that they demand is part (but only a part) of all of this process.

 

So, to the question “Can financial services be used to assist the poor in improving their

lot?” the answer is “only when finance is allowed to do what finance is supposed to do.”

 

That is, only when:

 

(a)        finance allows a transfer of purchasing power from uses with low to uses with high marginal rates of return;

(b)        finance contributes to more efficient inter-temporal decisions about saving, the

accumulation of assets, and investment;

(c)        finance makes possible a less costly management of liquidity and accumulation of stores of value; and

(d)        finance offers better ways to deal with the risks implicit in economic activities.

 

Otherwise, financial interventions (such as the early subsidized and targeted credit

programs) are a weak instrument to achieve different, non-financial objectives and frequently lead to unexpectedly negative outcomes (Gonzalez-Vega, 1994). This section can be summarized with the proposition that many ingredients are needed for the poor to come out of poverty and that credit is only one of them. Credit is an important ingredient, but it is not even the most important one. Financial services play the key role of facilitating the work of growth-promoting forces, but only when the opportunities exist. In this case the poor also need saving facilities as it is one of the most important ways of storing their value. Therefore poor countries should encourage deposit taking MFIs for this objective to be fully met.

 

6.0   LESSONS LEARNED ABOUT LOANS AND DEPOSITS

 

As alluded to above, a second important lesson learned from accumulated experience is that, among financial services, credit is not the only one that is important for the poor. In particular, deposit facilities provide valuable services for liquidity management and for the accumulation of stores of value by poor firm-households. Researchers are always surprised by the intensity of the demand for deposit facilities in the rural areas of very poor countries (Gonzalez-Vega et al.). According Robinson, to satisfaction of this demand has been a distinctive feature of programs that have been successful in delivering financial services to the poor (Robinson). An outstanding example is the unit desa program of the Bank Rakyat Indonesia, with over 12,000,000 small depositors for only over 2,000,000 small borrowers (Patten and Rosengard). Thus, while not all producers demand loans and, among those in need the majority needs saving facilities. Among others, we need to emphasize the i mportance of payments services, particularly for remittances and other money transfers In this regard financial inclusion will be approached in a holistic manner. We fully agree that a payments service is another important service for the poor. Therefore payment system should collaborate well with saving and provision of credit for the full attainment of financial inclusion.

 

Empirical evidence clearly demonstrates that the poor do not demand credit all of the time, most (if not all) economic agents demand deposit and other facilities for liquidity management and reserve accumulation, all of the time.

 

A third lesson from direct experience is that the demand for credit is not just a demand for loanable funds. Finance is intimately linked to inter-temporal decisions, and in this sense it plays a critical role not only in savings and investment processes but also in dealing with the lack of synchronization between income generating (production) and spending activities (consumption and input use decisions), as well. Finance is also closely associated with risk management. It facilitates the accumulation of reserves for precautionary reasons (to be able to survive emergencies) and for speculative purposes (to be able to take advantage of unexpected future opportunities). For this, being creditworthy is critical. Being creditworthy is equivalent to possessing a credit reserve: poor people do not necessarily want a loan now; they want the opportunity to get one, if and when they need it (Baker). They want this potential access to a loan to be reliable, to result in a timely an d flexible disbursement of funds, to be always there. According to research finding, because the informal sources of credit do offer these opportunities, poor people are reluctant to substitute formal sources of funds, no matter how subsidized, for the flexible and reliable informal financial arrangements that have served them well over the years.

 

Thus, what matters is not just access to loanable funds (credit) but the development of an

established credit relationship. This, in turn, implies a sense of permanency of the financial institution. A fourth lesson learned, in this connection, is that a financial intermediary cannot be restricted to credit provision alone but to institutional framework support.

 

7.0   INSTITUTIONAL VIABILITY AND THE POOR

 

With every program we have learned that the most severe deficiency of the earlier

interventions to provide financial services to the poor was the lack of institutional viability of the organizations that were created for that purpose. For instance, why does viability matter so much?  The concern with viability springs first from a clear recognition of the scarcity of resources. If resources are limited, without self-sufficient financial institutions there is little hope for reaching the numbers of poor firm-households that are potential borrowers and depositors. The amounts required are beyond the ability and willingness of governments and donors to provide them (Otero and Rhyne).  We therefore, as poor nations need to guard against weak prospective financial services in the system to compliment government and donors’ efforts.

 

The alternative to viable organizations are expensive, unviable quasi-fiscal programs that reach only a selected few beneficiaries. Thus, viability matters the most from this equity perspective: to be able to reach more than just a privileged few. Moreover, if the objective were just a one-time (transitory) injection of funds, then lump-sum transfers are always a more efficient way of accomplishing this. If, on the other hand, sustainability is important, then the viability of the financial organization matters.

 

Further, in addition to being fiscally feasible, the most important contribution of a concern with institutional viability is that it elicits appropriate incentives among all the participants in financial transactions. Thus, for example, while poor loan recovery rapidly destroys viability, an image of viability improves repayment discipline. A reputation as a good borrower in an established intermediary-client relationship is a more valuable intangible asset if the financial institution is expected to be permanent rather than transitory.

 

When this intangible asset is sufficiently valuable, it elicits punctual repayment. When the organization's survival is questioned, on the other hand, default follows in stampede, and institutional breakdown becomes a self-fulfilling prophecy. Viability matters when repayment matters. Therefore, there is strong need to ensure that borrowers have a good credit culture. This is where a strong credit reference service is imperatively needed to enhance good credit culture.

  

In this way, a concern with viability makes it possible to identify one way how interest

rates and default rates are linked. Too low interest rates that cause intermediary losses are

perceived by borrowers as signals of lack of permanency and thus delinquency follows..

 

Moreover, in the same way that very high interest rates may induce adverse selection (Stiglitz and Weiss), too low rates tend to attract rent seekers who eventually default (Gonzalez-Vega 1993). Thus, both too high and too low interest rates may reduce expected intermediary profits through higher expected default rates. There is need to strike a balance, to make sure that real interest rates strike a balance

 

As another example, the targeting of loan uses, irrelevant because of the fungibility of

funds (Von Pischke and Adams), basically increases both lender and borrower transaction costs and reduces the quality of the services supplied by the intermediary and thus lowers the value of the intermediary-client relationship.

 

In summary, targeting hurts viability in several ways. It reduces the scope for portfolio diversification in already highly specialized lenders. It limits the lender's degrees of freedom in screening loan applicants, and it reduces incentives for vigorous loan collection, shifting accountability for default from the lender to the donor that conditions the availability of funds to their use for specific targets (Aguilera-Alfred and Gonzalez-Vega).  Findings reveal that compliance with the targeting becomes imperatively difficult, for a long time many donors ignored this potential impact of targeting on delinquency, but they were very surprised when rampant default destroyed the institutions that had been (ab)used to easily channel donor funds.

 

 Deposit mobilization, on the other hand, is not an easy task. It requires an appropriate organizational design, liability management techniques, and prudential supervision to protect depositors. You therefore require a strong and resilient regulator.

 

Finally, deposit mobilization is also intimately linked to the importance of institutional

viability. Deposits provide information to the lender about the potential borrowers, create a basis of mutual trust, and facilitate the accumulation of a down payment that can serve as a deductible in any future loan contract. Deposits contribute, therefore, to the solution of difficult information problems frequently encountered in financial markets. Moreover, healthy deposit mobilization creates an image of institutional viability that promotes repayment. Thus, while donor-funded loans may not be repaid, those funded with the neighbor's deposits are (Aguilera-Alfred andGonzalez-Vega).

 

Most importantly, depositors create institutional independence from the whims of donors

and politicians; they shield the financial organization from political intrusion (Poyo, Gonzalez-Vega and Aguilera-Alfred). In general, deposit mobilization contributes to sustainability and to an organizational environment (corporate culture) where permanency becomes an important (compatible) incentive to attract and retain competent managers and induce the agency's staff to behave in ways compatible with the viability of organization. For them, the value of their relationship with the organization increases when deposits are an important source of funds. This encourages correct decisions and effort (Chaves 1993).

 

8.0   FORMAL AND INFORMAL FINANCE

 

Against this backdrop as poor countries formulate financial inclusion vision and strategy they need to recapitulate the following into consideration that:

 

 

(a)        The poor need more than just financial services; the non-financial ingredients of growth and development matter;

(b)        The poor need more than just credit; deposit facilities may matter even more.

(c)        The poor need more than just loanable funds; they need a permanent, flexible and reliable credit relationship;

(d)        In consequence, the poor need viable, efficient, profitable, well-managed financial

intermediaries with which to establish these permanent relationships.

9.0              OBSERVATIONS

 

One important additional lesson increasingly learned over the past decades is that informal financial arrangements are pervasive and very successful in providing several (some) types of financial services among the poor (Bouman and Hospes). They are timely, reliable, and levy low transaction costs on their clients, mostly for loans of small amounts and at short terms.

 

The value and importance of these informal financial arrangements have been increasingly recognized and visions of exploitation have been replaced by attempts to either replicate their features or link informal lenders to national financial networks (Adams and Fitchett). But, as Hugo Pirela has asked “if this is the case, why would additional (semi-formal and formal) financial intermediaries be needed to do a job that indigenous, informal arrangements are already doing to well?” The fact is that, despite their valuable contributions, informal financial arrangements suffer from several limitations.

 

These shortcomings stem from the very features that make informal transactions competitive in the first place. They are grounded in the local economy and are thereby limited hence the need to formalize them in form of microfinance institutions.

 

Moreover, successful finance requires inputs for screening loan applicants (information management for creditworthiness evaluation and loan approval), for monitoring borrowers, and for the efficient design and enforcement of contracts. These costs are a function of distance (geographic, occupational, and ethnic) and of feasible technologies used to produce these services.

 

In addition, alternative technological arrangements result in specific comparative advantages in the provision of financial services in specific market niches. The choice of appropriate technology thus becomes critical.

 

Much technological progress has taken place in the area of microfinance (Christen, Rhyne, and Vogel). The key to success is to design an intervention that is properly dimensioned to the size of the market and compatible with the nature of the clientele (Chaves and Gonzalez-Vega).

 

Traditional banking technology, for example, is prohibitively expensive for loans to the poor in real terms. Both lender and borrower transaction costs are too high in this case. Moreover, as the poor are so heterogeneous, so are the financial services that they demand, creating opportunities for different types of intermediaries.

 

Commercial banks may, of course, adopt more information-intensive technologies than those that rely on traditional collateral; that is, embark on “downgrading” strategies (Krahnen and Schmidt). This adaptation of commercial banks’ technology of extending loans is clearly taking a centre stage in Zambia. We have seen a lot of banks extending microfinance services to the public, but this is explicitly available to the elite.

 

Although there are major advantages in using banks as intermediaries, to reach marginal clientele they need a technological revolution. Other non-bank organizations may possess comparative advantages in information and contract enforcement among this clientele. They may eventually be “upgraded” to become more like banks. In either case, the challenge is to bring together those who have the informational and enforcement advantages (usually local agents) and those with sufficient resources and willingness.

 

Appropriate technology is clearly a necessary condition for reaching the poor with

sustainable financial services. It is not a sufficient condition, however. While policies,

procedures and technologies matter, policies will not be enacted, procedures will not be revised, and technologies will not be adopted, unless it is in someone's interest to do so.

 

In the end, all decisions are made by individuals, who pursue their own objective functions, given existing constraints.

 

Institutions constrain individual behavior, define property rights and incentives, and embody the rules of the game (North). Organizational design matters a lot because individual choices are induced and/or constrained by the structure of incentives within the organization.

 

Organizational design is critical because it influences behavior and behavior influences performance. If what matters is not just loanable funds but viable organizations, emphasis on designing efficient and viable organizations is critical. The dilemma is that a flood of donor and government funds tends to destroy adequate organizational designs. Because wealth constraints matter, how to overcome those constraints without at the same time destroying the intermediary involved is a major challenge.

 

It seems that the most difficult remaining question in the provision of financial services

to the poor is thus the design of organizations with the correct structure of incentives and

governance rules (Chaves 1994). As this depends so much on the structure of property rights of the organization, there are serious questions about the extent to which intermediaries with diffused property rights structures (such as the old public development banks and the new NGOs) or with conflicting governance rules (such as credit cooperatives) will be able to generate sustainable financial intermediation. The greatest challenge for the progress of finance for the poor, therefore, is in the institutional design of such organizations. This is, according to Krahnen and Schmidt, the most promising and critical area for future donor assistance.

 

Moreover, because of several limitations of locally-based financial arrangements (limited

opportunities for risk diversification and intermediation), appropriate links of the local

intermediaries to the aggregate financial system must be established, in order to increase the viability of enforcement-effective and informationally-advantaged agents, which may suffer from local, covariant, systemic risks and from limited opportunities for intermediation between surplus and deficit units. Ultimately, what matters is the development of financial systems and networks (e.g., new ways of economic organization).

 

As markets grow and institutions are developed, formality will increase (although informality will not disappear), and the introduction of modern institutions will be required. For this, appropriate policies, cost-effective technologies, and viable organizational designs will still be needed.

 

10.0          CONCLUSION

Therefore the vision of the poor countries in promoting this concept of financial inclusion in poverty reduction need to focus on the concerns about poverty raised in this paper;the relationship between financial inclusion and poverty, functions of finance, finance and poverty: lessons from the past, lessons learned about loans and deposits, institutional viability and the poor, formal and informal finance and lastly the relevant observations made in this paper.  REFERENCES

 

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