Women's Access to Credit and Rural Micro-finance in India

A dilemma seems to
exist between
developing a sound
banking system and
simultaneously
dealing with poverty
The major objective of the nationalization
of banks in 1969 and 1980 was to
improve the flow of institutional credit
into rural households, especially the
poor. Commercial Banks play a dominant
role in rural financial markets in
contemporary India. Priority sector lending
was one of the most important tenets
whereby the RBI stipulated commercial
banks to ear mark 40 per cent of
their advances for priority sector lending.
Of this 18 per cent was for agriculture
and 10 per cent for weaker sections.
The rural credit market expanded significantly
in the post- nationalization
phase. There has been a significant improvement
in outreach due to nationalization
and social banking. Between
mid 1970s and mid 1990s bank credit
in the rural sector increased by nearly
240,000 million and rural deposits increased
by about 410,000 million.
Therefore, the share of both rural credit
and deposits almost doubled during this
period. The poverty eradication programs
of the government also played
important roles in addressing the credit
needs of the poor. The Integrated Rural
Development Program (IRDP) was the
largest ever anti-poverty program
launched during the Sixth Plan. It used
the banking channel to direct assistance,
which was a combination of credit and
subsidy to those below the poverty line.
(Nair, 2000)
However, trends also show that the accent
on development banking of commercial
banks weakened considerably in
the 1980s and 1990s. There has been
deterioration in the pace of increase in
outreach of commercial agencies and a
decline in non-institutional sources in
the 1980s. There is also a deceleration
in the growth of commercial bank credit
to rural areas in terms of both disbursal
and outstandings in the late 1980s and
early 1990s. Further there has been relative
fall in the proportion of bank credit
flowing to the priority sectors, especially
agriculture, since the mid-1980s. There
is a close connection between the commercial
banks outreach to the rural
economy and the government’s commitment
to anti-poverty programs. It may
be argued that the so-called development
outlook of the banking sector is
in fact a reflected one and does not by
itself signify its belief in the bankability
of the poor. The IRDP targets were
achieved because the banks were compelled
to do so. Several relaxations were
made with respect to eligibility criteria,
procedures, rate of interest, collateral
security and guarantee for the loan etc.
However, the viability of loans is open
to question and the recovery performance
has also not been satisfactory.
(ibid.).
A dilemma seems to exist between developing
a sound banking system and
simultaneously dealing with poverty.
There appears to be a mismatch between
development goals and what is expected
of economic/financial prudence. Banks
have generally shown disinclination to
service the poor who are distanced spatially
and metaphorically from them and
hence whose risk profile is difficult to
assess. In the recent years, economic factors
eventually took precedence over the
social agenda. Regional Rural Banks
which were set up with the primary objective
of meeting the credit needs of
the weaker sections, were advised to
8 WOMEN’S ACCESS TO CREDIT AND MICROFINANCE IN RURAL INDIA