By Preeti R Iyer & Aniruddha Ghosh

For all the noise that it has generated, usage of technology to achieve financial inclusion is still far from what is being desired.

Lenders such as Citi and GE Money have withdrawn from advancing small-ticket personal loans. Other banks are also going slow on such products, given the absence of contract enforcement and difficulty in following know-your-customer procedures.

Further, senior industry officials feel that much of the focus towards rural banking and financial inclusion has been generated by repeated statements made by the Union finance minister P Chidambaram and RBI governor YV Reddy.

In short, financial inclusion is seen in the same manner as priority sector lending - an obligation rather than an untapped opportunity. For banks, the bottom of the pyramid is clearly not an attraction. It continues to be unchartered territory involving experimentation and huge operational costs. Compare this with the telecom companies which are making money selling airtime to labourers in recharge packages for as low as Rs 10.

By Luis Alberto Moreno

The president of Inter-American Development Bank argues that achieving greater "financial democracy" is crucial for achieving greater inclusiveness, improving social cohesion, and generating broad-based growth.

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Economic development, according to the Inter-American Development Bank (IDB), is for people-for citizens. If the benefits of economic growth fail to reach a majority, in the long run there can be no development. Over the past 3 years, Latin America has enjoyed its strongest cycle of economic growth in nearly 30 years. Remarkably, this expansion has been accompanied by low inflation, falling fiscal deficits, and current-account surpluses, and it has occurred amid the most active electoral calendar in the region's recent history. But conditions for the majority of Latin Americans have not improved substantially. Calls for change are thus being heard again and again. Without change and real improvements in the people's well-being, the legitimacy of the development effort will continue to be called into question.

Development is a combination of good policies, both macro- and micro-economic. The development of regions such as Southeast Asia, for example, was based largely on the application of numerous microeconomic instruments, backed by stable macro frameworks. In Latin America, despite remarkable achievements at the macro level, we have often neglected the micro dimension of development; we have fallen short in creating and distributing opportunity. The region's per capita income has barely doubled over the past 45 years, whereas in South Korea it has increased 15-fold. Poverty and inequality ratios have been stagnant in Latin America, and a large proportion of our people still await the promised fruits of progress.

Going forward, we need to focus our attention on expanding opportunities at the base of the economic pyramid, which represents a large majority of Latin Americans. Few areas will be more important in this effort than building deeper, more inclusive financial markets.

Last year, the World Resources Institute, a Washington-based environmental research group, published a report with the International Finance Corporation entitled "The Next Four Billion," an economic study that looked at, among other things, how poor people living in developing countries spent their money. One of the most remarkable findings was that even very poor families invested a significant amount of money in the I.C.T. category - information-communication technology, which, according to Al Hammond, the study's principal author, can include money spent on computers or land-line phones, but in this segment of the population that's almost never the case. What they're buying, he says, are cellphones and airtime, usually in the form of prepaid cards. Even more telling is the finding that as a family's income grows - from $1 per day to $4, for example - their spending on I.C.T. increases faster than spending in any other category, including health, education and housing. "It's really quite striking," Hammond says. "What people are voting for with their pocketbooks, as soon as they have more money and even before their basic needs are met, is telecommunications."

There are clear reasons for this, but understanding them requires forgetting for a moment about your own love-hate relationship with your cellphone, or iPhone, or BlackBerry. Something that's mostly a convenience booster for those of us with a full complement of technology at our disposal - land-lines, Internet connections, TVs, cars - can be a life-saver to someone with fewer ways to access information. A "just in time" moment afforded by a cellphone looks a lot different to a mother in Uganda who needs to carry a child with malaria three hours to visit the nearest doctor but who would like to know first whether that doctor is even in town. It looks different, too, to the rural Ugandan doctor who, faced with an emergency, is able to request information via text message from a hospital in Kampala.

Jan Chipchase and his user-research colleagues at Nokia can rattle off example upon example of the cellphone's ability to increase people's productivity and well-being, mostly because of the simple fact that they can be reached. There's the live-in housekeeper in China who was more or less an indentured servant until she got a cellphone so that new customers could call and book her services. Or the porter who spent his days hanging around outside of department stores and construction sites hoping to be hired to carry other people's loads but now, with a cellphone, can go only where the jobs are. Having a call-back number, Chipchase likes to say, is having a fixed identity point, which, inside of populations that are constantly on the move - displaced by war, floods, drought or faltering economies - can be immensely valuable both as a means of keeping in touch with home communities and as a business tool. Over several years, his research team has spoken to rickshaw drivers, prostitutes, shopkeepers, day laborers and farmers, and all of them say more or less the same thing: their income gets a big boost when they have access to a cellphone.

In 2001, the IPCC concluded that "the impacts of climate change will fall disproportionately upon developing countries and the poor persons within all countries." The poor are least able to cope on their own with the threats to their homes, communities, livelihoods and health. What role might microfinance-the delivery of financial services, including credit, savings, and insurance to the poor-play in reducing our greenhouse gas emissions and helping vulnerable low-income populations adapt to the impacts of climate change?

Just a few years ago, most people working in microfinance viewed environmental concerns as a luxury. While such worries were undoubtedly important for society as a whole, expecting their low-income clients to adapt their enterprises and lifestyles towards "greener" practices were not only unrealistic, but tantamount to levying a tax on those least able to afford it. Innovation in the microfinance field focused on products that would help poor people increase their incomes and reduce vulnerability in the short term.

The past year has brought a sea change in this perception. The notion is gaining acceptance that incorporating a climate change lens to microfinance is essential and urgent. A growing circle of microfinance institutions (MFIs), networks and funders has launched new products and partnerships aimed at the microfinance-environment connections. For example, a pilot program-funded by the Citigroup Foundation and the US Agency for International Development and managed by the Small Enterprise Education and Promotion (SEEP) Network-teamed up six MFIs in Asia and Africa with renewable energy companies and organizations to explore potential collaborations and business models (SEEP 2007). A number of respected MFIs and networks-including ACCION, BASIX in India and Equity Bank in Kenya-are exploring products to respond to climate change challenges and opportunities.

The Soros Economic Development Fund (SEDF), Omidyar Network, and Google.org announced a new $17 million Small to Medium Enterprise Investment Company for India to create job opportunities and spur greater economic participation for a large segment of the population. This joint company will provide capital to small and medium businesses in underserved markets.

"With this investment, we will meet the huge demand to serve smaller businesses in India that have little access to finance. Long ignored by commercial capital markets, small and medium businesses are an attractive investment opportunity as well as an engine for economic growth for India." said Neal DeLaurentis, Vice President of Soros Economic Development Fund.

Bangladesh is the home of grameen banking. Now the country will have another distinction with a microfinance institution (MFI) headquartered in that country receiving the world's largest ever funding for an MFI. ASA International, which has presence in Asia and Africa, will receive about $125 million from Catalyst Microfinance Investors (CMI), a leading private equity fund focused on investing in microfinance institutions on a commercial basis.