The financial inclusion agenda: for poverty alleviation or monetary control?

Abstract

This article argues that financial inclusion policy in Pakistan has been subsumed by the regulatory needs of the central bank, opening a divide between the ‘development approach’ of donors and the ‘regulatory approach’ of the central bank. This shift is identified in an emerging macro turn in central bank discourse and policy, which is steering the National Financial Inclusion Strategy away from the person-centred donor-driven agenda towards the imperative of shoring up rupee governance amidst burgeoning informal markets, low levels of bank intermediation and high levels of currency-in-circulation. The article argues that this rerouting of financial inclusion policy is ultimately a consequence of the central bank’s failure to grasp effective policy control over the rupee following rapid economic liberalization in the 1990s. The article explores why growing informality in money and markets is a problem for monetary governance; how financial inclusion answers to this predicament; and why the shift from poverty alleviation to monetary control remains unforeseen by donors. The article shows why inflation targeting – itself core to the wider liberalization project – hinges on the success of financial inclusion, thus revealing an important new driver propelling the financial inclusion agenda forward amidst implicit and unforeseen conflict between donors and the national leadership.