Systems Design Choices for Financial Inclusion

Authors: Bindu Ananth & Nachiket Mor

Financial
 inclusion
 is
 an
 important
 objective
 for
 the
 financial
 system
 for
 a
 variety
 of
 reasons including: better
 alignment
 of
 financial
 sector
 signals 
and
 real
 sector 
with
 respect
 to
 allocation
 of resources, allowing 
people 
to 
smooth
 consumption
 across
 time
 and 
enable 
diversification
 of 
risks 
for households.

 However
 it
 needs
 to
 be
 achieved
 in
 a
 manner
 that
 it
 does
 not
 impair
 the
 systemic stability
 of
 the 
financial 
system
 and 
its 
ability 
to 
offer 
a 
high
 degree
 of 
depositor 
protection
.

The 
objective
 function
 may
 therefore 
be 
defined 
as:
maximise
(financial
inclusion)
subject
 to 
a 
high degree
 of
 depositor
 protection
 and
 systemic
 stability.
 
 The
 two
 constraints
 are
 in
 turn
 a
 function respectively
 of
 solvency
 of
 financial
 institutions
 and
 liquidity
 in
 the
 financial
 system
 and
 alternate designs 
for 
financial 
inclusion
 would 
need 
to 
be 
evaluated
 using 
these 
two 
dimensions.

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