How Much Can Asset Portfolios of Rural Households Benefit from Formal Financial Services?

Another good paper that I enjoyed reading. From what I digested, a few things came to mind – related to the paper (Part 1) and not the focus of the paper (Part 2).

Part 1

i) the comparison on insurance and the risk return spread (while valid) does present the sales problem (or getting buy-ins). The commitment towards annual/monthly payment vs an invisible spike in return (its to the order of .3% and thereabouts). For the uncertain income categories ( as opposed to salary), that’s cash gone now and every month vs incremental returns. May be easier to present the possible results as the quantum increase. eg. At end of lifetime corpus of savings will now be Rs 150,000 even if the cow dies vs Rs 140,000 with risk of lot less). I understand this is not intended to be the “marketing” paper, but its an aspect to file away.
ii) the push for single stop financial products access point is strengthened through this primary research. In fact, no reason to treat this differently as an “essential service”/infrastructure like the post office is.

Part 2

A couple of points stood out, that are unrelated to the primary focus of this paper. I thought I’d write it anyway, for you to chew over.

i) The category with about the best looking financial spread/status and the one with the worst looking financial status are the Salaried vs Labour. Intuitively, a salaried person will be able to make more meaningful commitments and take risks – but this paper reinforces this with some numbers – assets, income risks. In fact, the insurance related gains are max for the salaried class. For the labor category, the incremental risk/return is virtually zero.
ii) Housing is treated as a consumption asset, for this study, primarily as land values are killed through trading restrictions on them – that affect prices and liquidity.

It stands to some reason, therefore, that moving labour to the salaried class will address huge development problems. Not different from urban areas. A more vibrant approach to land pricing will unlock that asset (that consumes 50% or more the HH income).

so:
i) There is a strong case for permitting large private investment in agriculture/related areas as an enterprise. This may enable “labor” to shift to “salary”. Much of the agri’business category are suppliers, services to agri business. They will also benefit through higher steady earnings.
ii) Unlocking the land for such trade – will also push up prices and make it a more liquid asset. Already this happens when land is acquired for infrastructure purposes – high appreciation, that is.

Even in this complicated terrain, the people who will still struggle are the landless labor. This only strengthens the case for them shifting to salaried employment – doing what they have some skill to do – agriculture.