Growth of rural economy depends primarily on infusion of capital, from time to time, to realise higher productivity in agriculture and non-agriculture sectors. As the time gestation between crop sowing and realisation of income after production is quite long, farmers borrow from various sources to meet their initial investment on seeds, fertilisers, implements and other family expenses of marriage, death, religious ceremonies etc.
At the time of independence, moneylenders and traders exploited small and marginal farmers and landless labourers by lending to them on high interest rates and by manipulating the accounts to keep them in a debt-trap.
A major change occurred after 1969 when India adopted social banking and multi-agency approach to adequately meet the needs of rural credit. Later, the National Bank for Agriculture and Rural Development (NBARD) was set up in 1982 as an apex body to coordinate the activities of all institutions involved in the rural financing system. The Green Revolution was a harbinger of major changes in the credit system as it led to the diversification of the portfolio of rural credit towards production-oriented lending.
The institutional structure of rural banking today consists of a set of multi-agency institutions, namely, commercial banks, regional rural banks (RRBs), cooperatives and land development banks. The major aim of designing this multi-agency system is to dispense adequate credit at cheaper rates.
Recently, Self-Help Groups (henceforth SHGs) have emerged to fill the gap in the formal credit system because the formal credit delivery mechanism has not only proven inadequate but has also not been fully integrated into the overall rural social and community development. Since some kind of collateral is required, vast proportion of poor rural households were automatically out of the credit network.
The SHGs promote thrift in small proportions by a minimum contribution from each member. From the pooled money, credit is given to the needy members to be repayable in small instalments at reasonable interest rates.
By March end 2003, more than seven lakh SHGs had reportedly been credit linked. Such credit provisions are generally referred to as micro-credit programmes.
SHGs have helped in the empowerment of women but the borrowings are mainly confined to consumption purposes and negligible proportion is borrowed for agricultural purposes.
The Poor Women’s Bank
‘Kudumbashree’ is a women-oriented community-based poverty reduction programme being implemented in Kerala. In 1995, a thrift and credit society was started as a small savings bank for poor women with the objective to encourage savings. The thrift and credit society mobilised Rs 1 crore as thrift savings. These societies have been acclaimed as the largest informal banks in Asia in terms of participation and savings mobilised.
Source: www. kudumbashree.com.
Rural Banking — A Critical Appraisal
Rapid expansion of the banking system had a positive effect on rural farm and non-farm output, income and employment, especially after the green revolution — it helped farmers to avail services and credit facilities and a variety of loans for meeting their production needs. Famines became events of the past; we have now achieved food security which is reflected in the abundant buffer stocks of grains. However, all is not well with our banking system. This is largely because of the chronic underperformance of formal credit institutions and high incidence of overdue instalments by the farmers.
With the possible exception of the commercial banks, other formal institutions have failed to develop a culture of deposit mobilisation — lending to worthwhile borrowers and effective loan recovery. Agriculture loan default rates have been chronically high and many studies reveal that about 50 per cent of the defaulters were categorised as ‘wilful defaulters’ which is a threat to the smooth functioning of the banking system and needs to be controlled.
Thus, the expansion and promotion of the rural banking sector has taken a back-seat after reforms. To improve the situation, banks need to change their approach from just being lenders to building up relationship banking with the borrowers. Inculcating the habit of thrift and efficient utilisation of financial resources needs to be enhanced among the farmers too.
Bibliography : NCERT – Indian Economic Development