WWRR Vol.2.015

Agri-inputs / Automobiles
India
UDAYA KUMAR: RURAL LEVERAGE: LONG ROAD
Managing Director &
CEO, CreditAccess
Grameen
Key takeaways
Rural penetration is low in India. Mr Kumar said that credit to rural India is quite low
compared to other areas and MFI will play an important role in bridging the gap. One
important factor is the low penetration of banks in these areas. Though rural India
contributes ~47% of GDP, the credit contribution is as low as ~10%. Thus, ~37% of
rural GDP is dependent on informal sources of credit. The number of deposit accounts at
576 mn is nearly 10 times the number of credit accounts at 57 mn as of FY2016.
Increasing focus on financial inclusion is a key strategy to reach Bottom of Pyramid customers.
Step towards financial inclusion includes a mix of various strategies. The
establishment of adequate physical and digital infrastructure, a suitable regulatory
framework, increasing financial awareness, a robust grievance-redressal mechanism,
scientific assessment tools and an effective coordination mechanism to leverage
synergistic benefits are key pillars of increasing financial inclusion in India.
Government and regulatory initiatives play a pivotal role in financial inclusion.
Introduction of no frills accounts, BC model, liberalization of branch expansion/ATM
policy, introduction of payment banks and SFBs, PMJDY, Mudra loans, Aadhar card,
financial literacy programs , etc. have been instrumental in increasing financial inclusion in
India. Proper implementation of these strategies in a coherent manner will finally lead to
increasing penetration in rural areas, Mr Kumar said.
Credit to rural customers start with micro credit. A rural unbanked customer first
enters the credit system via micro credit and then moves towards banks and other
financial institutions for other sources of credit. Lack of awareness, non-availability of
diverse trustworthy service providers, lack of opportunities for women, etc. led to the
evolution of the JLG model.
Importance of regulator in the MFI industry is quite high. The Indian economy saw
sharp credit growth in the MFI business in FY2010 when regulations were less stringent
than today. Key areas of regulation include: the choice of target customer, total
indebtedness (