Sreyashi Datta, Academic Content Writer at Edumartz
Credit:
The rural economy‘s growth is essentially dependent on capital infusions from time to time in order to achieve greater productivity in agricultural and non-agriculture sectors. Farmers borrow from many sources to pay their initial investment on seeds, fertilisers, tools, and other family costs such as marriage, death, religious rites, and so on because of the time lag between crop sowing and realisation of money after output is fairly significant.
Small and marginal farmers and landless labourers were being exploited by moneylenders and dealers on the eve of independence with debt. After 1969, a significant shift happened when India implemented social banking and a multiagency strategy to fully satisfy the demands of rural credit. The National Bank for Agriculture and Rural Development (NABARD) was founded in 1982 as the core entity for regulating the works of all institutions under the rural finance system. Green Revolution brought changes in the credit system, which resulted in production-oriented lending.
The institutional framework of today’s rural banking includes
- private banks
- regional rural banks (RRBs),
- cooperatives
- land development banks.
They are intended to provide ample credit at lower interest rates. Formation of Self-Help Groups (henceforth SHGs) fulfils a vacuum in the formal credit system since the formal credit distribution mechanism. Because some type of collateral is necessary, a large share of poor rural households is immediately shut out of the credit network. SHGs encourage thrift in tiny doses by requiring a minimum commitment from each member. Credit is granted to needy members from the pooled funds, repayable in modest instalments at moderate interest rates. By May 2019, over 6 crore women in India have joined 54 lakh women SHGs. As part of the refurbishing fund, around ’10-15,000 per SHG and additional ‘2.5 lakhs per SHG as a Community Investment Support Fund (CISF) are granted to encourage self-employment for income creation. These credit arrangements are known as micro-credit programmes. Women empowerment has been driven by SHGs. It is said that the borrowings are mostly for personal use.
Rural Banking — a Critical Appraisal:
A Critical Examination of Rural Banking: Rapid banking system expansion had a favourable influence on a rural farm and non-farm productivity, income, and employment, particularly following the green revolution – it enabled farmers to access services, credit, and a range of loans to suit their production demands. Famines are now a thing of the past; we now have food security, which is represented in the abundance of grain buffer stockpiles. However, our banking system is in disarray. Other formal institutions, with the probable exception of commercial banks, have failed to build a culture of deposit mobilisation — lending to creditworthy borrowers and successful loan recovery. Loans related to agriculture have been observed to be high through decades.
As a result of the changes, the growth and promotion of the rural banking industry have taken a back seat. To ameliorate the issue, all adults have been urged to register bank accounts as part of a plan called as Jan-Dhan Yojana in recent years. These bank customers can acquire Rs. 1-2 lakh in accidental insurance coverage and Rs. 10,000 in overdraft privileges, as well as have their government salary, old-age pensions, and other social security payments transferred to their bank accounts. There is no requirement to maintain a minimum bank balance. This has resulted in over 40 crore individuals opening bank accounts; indirectly, it has fostered thrift and effective financial resource allocation, particularly in rural regions. Banks might also transfer cash worth more than Rs. 1,40,000. crores through these accounts.