Question

a. What is the interrelationship among

i. financial inclusion,

ii. financial deepening

iii. financial intermediation?

b .Why are these concepts so important?

Answer 1

Financial inclusion: financial inclusion means making more people in the population aware of the financial products in the economy and getting them onboard to start using these products. This makes credit facility (banking facility) more widely available & & risks widely distributed in the economy. With higher credit/banking facility available to the population, the MSME (micro small medium enterprises) entrepreneurs can grow their business & thereby increase the GDP & PPP of the region.

Financial deepening: cross-selling of various financial/banking services to the population on-boarded through financial inclusion. As cross-selling of products like mutual funds/insurance happens, more money is available to be invested into companies by mutual funds/insurance institutions. With more capital, companies can grow larger & increase the GDP of the region

Financial intermediation: A bank or an NBFC might not have reach at each & every corner of the region as it might be cost-prohibitive. To increase the reach, use of middleman (brokers) can be made who have pre-existing sales and distribution networks. This will enable banks/nbfc to increase the reach of their products & better diversify their risks by risk pooling. The brokers will work on a margin

(b) These concepts are very important because the absence of any one of the three factors will make financial services facilities in every region impossible. Hence, a symbiotic relationship exits between all these three things