Rediscovering Rural Finance by Retooling the Existing Institutions
Agriculture is the mainstay of India and is serviced by a rural finance system that is well organized although only in parts. This case study details the direction that rural institutions in India have taken, presenting cases of banks in north western India.
From the 1950s to 1980s, the focus of the government was on poverty alleviation, rather than on developing a proper banking system. Post 1991-92 banking reforms, this was remedied by allowing the institutions devise their own policies in the most profitable direction.
Under this initiative, the apex institution for rural finance, National Bank for Agriculture and Rural Development (NABARD), initiated drawing up Development Action Plans (DAP) for each rural finance institution (RFI). The basic philosophy of DAP was to prepare realistic action plans after a thorough analysis. As a result, a number of banks turned around.
The study cites two cases based on some parameters:
- Sangrur Central Cooperative Bank;
- Gurgaon Gramin Bank.
The experiences of these two banks show that regulation interventions granting freedom in policy and operations can make RFIs achieve sustainability and outreach objectives, in spite of severe constraints.
However, areas of concern that still remain are:
- Legal and administrative;
- State and central demarcation of authority;
- Manpower and technology.
The author concludes that the time has come for the states to exit from rural banking.
