A window into the new ‘financial inclusion paradigm’


Participants at the 2012 GPF in South Africa.

Participants at the 2012 GPF in South Africa.


On the first day of the Alliance for Financial Inclusion’s (AFI) 2012 Global Policy Forum (GPF), held in Cape Town, South Africa, we heard two sets of remarks, which together for me provide insight into the current state of financial inclusion.

First, in the panel on the real economy, South African economist Iraj Abedian warned of the dangers of the ‘finance paradigm’. This paradigm is based on the view that finance, not the real economy, is at the center and that financial stability matters above all else. Most of us in the GPF audience could take comfort in the knowledge that we at least are not under the influence of that paradigm: after all, we represent the cause of the excluded, the real world, and real economy in which microfinance creates jobs, not destroys them; we challenge ‘big finance’ and are standard bearers for the cause of distributed ‘small finance’.

However, what if we are part of creating a new ‘financial inclusion paradigm’ which could come in time to have equally fatal flaws? After all, a paradigm is nothing more than a set of interconnected beliefs that frame a way of thinking and acting. Because paradigms frame thinking, they help to organize our thoughts, but they can also blind us to seeing what really works and what doesn’t. That is where the second set of remarks comes in. On the same ‘real economy’ panel, Amar Bhattacharya of the G24 secretariat also cautioned that much of what we presently do in financial inclusion rests on hypotheses, or beliefs, for which there is not yet clear evidence about ultimate impact. Of course, lack of evidence should not necessarily mean that we have to wait, rather than act: with any new approach, there might not be evidence available anyway. But it does mean that our mindset should be different: a lack of evidence should mean that what we do, we do carefully, humbly. It means that we hold lightly what we cannot call ‘self-evident truth’. In a peer learning context like AFI’s gatherings, it means that we learn even as we teach one another.

That sort of attitude of humility in the face of evidence is what makes the difference between ‘hard’ and ‘soft’ paradigms. A hard paradigm is rigid and inflexible, with a hard skin of its own self-created truth. It does not absorb new insights easily and struggles to adapt over time: evidence is reinterpreted to confirm the paradigm. Its proponents may even fight a rearguard action to sustain it even in the teeth of the evidence, although eventually it is discarded in the dustbin of the history of ideas. The finance paradigm of which Iraj Abedian warned is an example of a hard paradigm which blinded many for a time. Financial inclusion, too, is a paradigm, but it is younger, and as yet, still ‘softer’.

The real warning perhaps from the 2012 GPF, and in particular from the discussion about the real economy, is for the AFI network to be suitably cautious in our paradigm-building task: holding apparent truths lightly until we have more evidence, treating the evidence we gather with care, and walking humbly with one another on the long journey toward the deeply desired end goals, for which financial inclusion is but a means.

David Porteous is the founder and Managing Director of BFA, a consulting firm based in Boston. He is also an Associate at the Alliance for Financial Inclusion (AFI).

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