SOIL Report 2008 - ACCESS Development Services

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Chapter VIIIHowever as final wage settlements happen at the end of the season, it is likely that they are dependenton the Mukaddam to realise the current income, and to seek future employment opportunities. Thereare opportunities for providing an initial loan to reduce the financial dependence on the Mukaddam,and scope of providing for cash conservation at the destination and remittance-related services. This iscomplex as the economic activities are happening at two stations – the base of the household and thechanging destinations where they are working.The other demand-induced loan that is widely documented is for emergency purposes, for which thedependence on informal systems is imperative. While some microfinance initiatives address this by retaininga cash balance, or refinance a bridge loan from the informal sources, it is not widely prevalent.Structuring this from a formal source is a challenge.The current needs of the households come from a complex web of relationships. It may not be possibleto address every need from the formal sources. This requires re-engineering of the current products toaddress the spectrum of needs. Formal sources may not want to address all the needs. From the viewof productivity, we have illustrated how consumption loans on the lines of rice credit line actually mayadd to productivity, while the other loans are more in the nature of vulnerability reduction. Maheshwari(2004) 13 indicates that reducing vulnerability in itself can be a laudable goal. She compares the patternof borrowings of members of two-year-old SHGs as against members of eight-year-old SHGs and concludesthat there is no difference in the cost of borrowing between the two groups. At the initial stages,while the SHG members are heavily dependent on the moneylender, they also manage their finances byborrowing informally from their friends and relatives who lend at near-zero costs. As the SHG grows,their dependence on the moneylender gradually reduces, and concurrently the access to informal financefrom networked relationships also reduces. This does not affect the cost of borrowing significantly, butmakes the households less dependent on the moneylender. The argument is similar to the vulnerabilityargument extended in the rice credit line scheme.. Instead ofcontrollingat the supplylevel, it maybe a betteridea to makerural lendingattractive, byremoving formaland informalinterest rateceilings. Themicrofinancemarket hasflourishedbecause thecommercialdecisions suchas interest rateswere left to thelocal conditions.In addition there are needs pertaining to asset creation. Some assets lead to augmentation of incomesources and others lead to better quality of life. However, we cannot ignore the economic activities thatrelate to asset creation. Our data from the three districts show the absence of formal sources even inplanned events like housing because the design of products is contextually inappropriate. Addressingthese needs will reduce the dependence on one source and thus make the households less vulnerable.This in itself can have positive multiplier effects on income yields and productivity.11. Our policy interventions look for ‘quickfix’ solutions and theinterventions are finance-ledWe have to start recognising that there are no easy or short-term solutions. We need to understand thechanging face of Indian agriculture. The provision of financial services is one small part of the issue.The policy has to recognise the fact that rural lending is inherently risky because of the volatility of theunderlying economy and there is far less potential for institutions to cover costs. The institutions haveto maintain a balance between defaults and administrative/collection costs. Banks do not seem to have aclear idea on what it costs to lend in the rural areas, therefore it may be desirable to institute segmentedcosting systems where product-wise profitability could be arrived at. If the State still has to intervene,it can target interest subsidies, if they are absolutely necessary.Our argument is against any interventions in the interest rate space. Instead of controlling at the supplylevel, it may be a better idea to make rural lending attractive, by removing formal and informal interestrate ceilings. The microfinance market has flourished because the commercial decisions such as interestrates were left to the local conditions. We also see diversity in interest rates applied in the microfinance13Maheshwari, Neelam (2004): Access to Credit: Determinants for an SHG Member. New Delhi: PRADAN (mimeo).186
Agrarian Distress and Rural Credit: Peeling the Onionsphere depending on the situation, but that it is making access friendlier and has had an impact is beyonddoubt. Banking needs to be unshackled at this stage.We have to recognise that any intervention in rural areas has to have a large non-agricultural element to it.This is the only way we can recognise the seasonality of agriculture. It is absolutely essential to ensure thatthere are diversified livelihood opportunities across the country. This could happen through dovetailingthe livelihood opportunities with other schemes of the government like the rural employment guaranteescheme. (See chapter 3) It may be also useful to look at migration in a constructive sense and possiblyfacilitate benign migration in seasons from areas that are poorly endowed with natural resources. Unlessthe economy is lubricated with constant flow of cash from diverse activities, the vulnerability is onlygoing to increase. In addition there are the usual sore points that are discussed in literature ad-nauseumlike recognition of tenancy rights; bringing the land records up to date; providing forward/backwardlinkages; setting up of warehouses and cold chains and clearing the infrastructure bottlenecks.Agrarian distress in India is the manifestation of a complex interplay of changes in technology, fundamentalchanges in the way resources are used and the inadequate policy response that has focusedlargely on de-clogging credit supply. Agricultural livelihoods cannot be divorced from the larger issueof rural livelihoods and one of the most significant ways in which we could positively affect householdsinvolved in agriculture is to look at opportunities of livelihood diversification and opening up ampleopportunities in the non-farm sector.Agrariandistress inIndia is themanifestationof a complexinterplay ofchanges intechnology,fundamentalchanges in theway resourcesare used andthe inadequatepolicy responsethat has focusedlargely on decloggingcreditsupply.187
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State of India’s Livelihoods :The
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ChapterPage NoForeword 6Preface 8Ab
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ForewordAs a part of its microfinan
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employment growth, these sectors we
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RIAARMKRRBRSVYSCSC/STsSCPSCSPSERPSE
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Chapter Iresponse, risks and shocks
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OverviewTable 1.2 Employment and Un
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OverviewA recent paper by Arjun Sen
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Overview4. How is the livelihood st
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Overview5.2 Manmade constraints - i
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Overviewthe late 1980s, these two m
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OverviewIn the 1970s, the Chipko mo
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Overviewsocial responsibility (CSR)
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OverviewBox 1.3 Bihar - Underdevelo
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4040
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Chapter IIAn enumeration of the dep
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Chapter IIBox 2.1 Macro Level Livel
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Chapter IIIn addition to the above,
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Chapter IIFig 2.1: Poverty Ratio am
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Chapter IIPoormigrantlabouroften su
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Chapter IIInterestingly, the Govern
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Chapter IIThe effective cost of nat
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Chapter IIsector and thereby casual
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Chapter IIReferences1. Aiyar , Swam
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Chapter IIIto, the vulnerability co
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Chapter IIIIt would be useful here
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Chapter IIIof new employment opport
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Chapter IIIinterest subvention - wo
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Chapter III6. The 11th Plan propose
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Chapter IIIBox 3.5: Rural Business
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Chapter III9. The achievement of ge
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Chapter IIIaid. The Plan also seeks
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Chapter IIIand health. They point o
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Chapter IIIReferences1. Ambasta, Pr
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Chapter IVtransport, storage, commu
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Chapter IVing of ‘English Speakin
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Chapter IVWhile these livelihoods h
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Chapter IVTable 4.6 Employment with
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Chapter IVConstruction requires no
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Chapter IVgains in manufacturing ha
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Chapter IV10. A Spatial Perspective
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Chapter IVA quick glance at some of
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Chapter IV12. Once a watershed is d
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Chapter IVThrougha range ofschemes
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Public Systems: Major central gover
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Civil Society InitiativesChapter VI
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Civil Society InitiativesThe human
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SOIL Report 2008 - ACCESS Development Services

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