Independent Research and Policy Advocacy

Growth Week – Ideas for Growth: Macro Finance

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The International Growth Centre at the London School of Economics (LSE) is an institution that offers independent advice on economic growth to governments of developing countries. Bringing top policy-makers and researchers together, it endeavors to support policymaking with thorough research evidence as the foundation.

As a part of its growth initiative the IGC recently convened “Growth Week” between 19th to 21st September at LSE, a 3-day conference which brought together a diverse set of policy-makers and researchers from Africa & South Asia. Viral Acharya organized the session on Finance, Colin Mayer chaired the part on Macrofinance and Greg Fischer chaired the part on Mobile Banking. The focus of the session was on identifying areas of academic research on policy issues that practitioners and policymakers are seeking to address in relation to finance in developing countries and emerging markets.

Kshama Fernandes represented IFMR Trust and participated on the panel on “Ideas for growth: Macro Finance” along with Dr. Subir Gokarn, Deputy Governor, Reserve Bank of India & Ms. Shyamala Gopinath, former Deputy Governor, Reserve Bank of India.

Talking about the past, present and future role of commercial banks in India, Dr. Gokarn spoke of the efficiencies and inefficiencies of the system and the challenges they pose in the present context. While suggesting that there was a need to build on the existing penetration of banks, banks would continue to remain the principal channel of intermediation as far as lending is concerned.  However other financial intermediaries could have a significant role to play in the financial inclusion space by developing business models that were designed to address the specific needs of their customers.

In her presentation, Ms. Gopinath pointed out that while financial innovation definitely does have an impact on growth, it needs a precise framework to function in the desired manner. The basic framework required was:

  • Reasonable sophistication of participants (Financial literacy)
  • Sound legal framework for dispute resolution
  • Robust market infrastructure
  • Reasonably liquid and deep cash market
  • Financial Stability

Kshama Fernandes presented the Financial Systems Design framework based on a bottom-up approach with high quality origination, orderly risk transmission and robust risk aggregation as the three pillars of a well-functioning financial system.

The presentation below describes the key issues, the enabling infrastructure and some research questions that were discussed during the session.

The panel was attended by a large number of academics, researchers and some practitioners and generated a lot of discussion and interest on potential areas for future research. The broad areas that came up for research included: Finance and Growth (investment, bank lending, venture capital); Financial Systems and Stability (asset markets, securitization, financial regulation); and Financial Inclusion and Access by the Poor to Financial Services (savings, borrowing, payments).

As a follow-up to the Growth Week and an effort to advance these research areas, there will be a meeting of all academics associated with the Finance Programme of IGC on Tuesday November 15 at the LSE in London.

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