About BASIX and B-A-LAMP RGML Text.pdf · 2018. 3. 28. · About BASIX and B-A-LAMP BASIX Established in 1996, BASIX is a new generation livelihood promotion institution working with

About BASIX and B-A-LAMP

BASIX Established in 1996, BASIX is a new generation livelihood promotion institution working with over 1.18 million households in about 17,795 villages spread across 172 districts in 15 states that include Andhra Pradesh, Karnataka, Tamil Nadu, Orissa, Jharkhand, Maharashtra, Madhya Pradesh, Rajasthan, Bihar, Chhattisgarh, Delhi and others. Mission: To promote a large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated manner. BASIX will strive to yield a competitive rate of return to its investors to ensure access to mainstream capital and human resources on a continuous basis BASIX Academy for Livelihoods and Microfinance Practice BASIX Academy for Livelihoods and Microfinance Practice (B-A-LAMP) was established with the objective of identifying potential youth, build their capacities and deploy them in the rural/semi urban areas. B-A-LAMP offers a win-win situation for institutions like BASIX and host of many organizations in the industry offering financial services to the poor, their enterprises and job seekers from rural/semi urban areas. Mission: The mission of B-A-LAMP is ………to identify potential individuals, including from rural, poor and socially disadvantaged communities build their competencies (Knowledge, Skill and Attitude) and deploy them as required by the livelihood sector from time to time.

Triploma Program: In this pursuit of excellence, B-A-LAMP launched its first flagship program viz., Triploma in Microfinance and Livelihood Promotion for preparing individuals to take Field Executive/ equivalent positions in Banks, MFIs, Insurance Companies, Agricultural Input Companies, Development Projects executed by Government and NGOs. Hands-on-Training in the field for Substantial period along with classroom teaching is the uniqueness of the program. Short Term Programs: The Academy offers Executive Training Programs (ETPs), Study Tours, Exposure Visits on various issues in Microfinance, Livelihood Promotion, Urban Microfinance etc. B-A-LAMP already provided customized ETPs to NABARD, GTZ (China), Development Credit Bank (DCB), Mumbai etc.

BASIX Academy for Livrlihoods and Microfinance Practice

Professor Ranjit Gupta Memorial Lecture-2009 Revisiting Rural Finance in India

Dr. Y.S.P. Thorat Former Chairman National Bank for Agriculture and Rural Development Mumbai On April 17 2009 BASIX Academy for Livelihoods and Microfinance Practice (Division of BASICS Ltd)B-A-LAMP

Revisiting Rural Finance in India

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About Professor Ranjit Gupta Born in 1934, Prof. Ranjit Gupta is one of the very distinguished and eminent social Development thinkers that India produced. He did his Masters in Arts with specialization in Economics from Lucknow University in 1954. He joined as a Research Scholar in the same University and rose to Research Director’s position. He was an academician par excellence, scholar in many domains with lasting imprints in the minds of people and transcended gradually into an activist in development sector. He worked with Jay Prakash Narayan in the Association for voluntary Agencies in Rural Development (AVARD). He was a revered faculty member at the Indian Institute of Management, Ahmedahad (IIM-A). Along with Prof. Ravi Matthai, he conceived and ran the Rural University project in Jawaja, southern Rajasthan, which inspired dozens of IIM –A graduates to work in rural development. He was the Founder Secretary & Research Director of Institute of Social Studies Trust (ISST), New Delhi. Later in the mid-70s, he worked as a Consultant, Ford Foundation, New Delhi. He was also the Faculty & Chairman of Centre for Management (CMA), IIM-A and was instrumental in the establishment of IIMA’s Prof Ravi J. Matthai Centre for Educational innovation. He was Hon. Adviser founder of the TATA DHAN Academy in Madurai that has evolved as a centre of excellence in development education. He served as a member of many Task Forces /Working Groups appointed by the Government of India and Planning Commission in 70’s like Whole Village Development, National Commission on Agriculture, Command Area Development, Drought Prone Areas Development etc. He had rich and varied experience in Institution Building. He was a member of Governing Body, Indian Institute of Forest Management, Bhopal (1982-94): IGNOU, New Delhi (1986-87-1988-89): Chairman of Governing Body, Pradan, New Delhi (1988-95) and Board Trustees, Institute of Social Studies Trust, New Delhi (l994-2000). He was the President of Sampark, Bangalore (1996-2002) and Trustee, CDL, Bangalore. He authored, co-authored and edited several books and monographs, and research papers. He had keen interest in Development Management/ Education Sectors and special corner for NGO’s in Development sector. He believed in working with a focus on the disadvantaged groups by enabling development professionals to build people. Though he passed away in October 2008, he leaves behind a worthy legacy through his rich work and the contribution made to the sector


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Revisiting Rural Finance in India V. S. P. Thorat Distinguished Guests At the outset, I would like to thank BASIX for having invited me to deliver the first Prof.

Ranjit Gupta Memorial Lecture. Prof. Ranjit Gupta was an eminent social development thinker, an academician, a scholar and an activist who left a lasting imprint in the minds of those he met. He worked with Jaya Prakash Narayan in the Association for Voluntary Agencies in Rural Development and was also a revered faculty member at the Indian Institute of Management Ahmedabad. It was Ahmedabad that he, along with Prof. Ravi Matthai, conceived the idea and ran the Rural University project in Jawaja, southern Rajasthan, which inspired dozens of IIM-A graduates to work in rural development. Prof. Gupta was Chairman of the Centre for Management at the IIM-A. He was instrumental in the establishment of IIM-A’s Prof Ravi Matthai Centre for Educational Innovation and was Hon. Adviser and founder of the TATA DHAN Academy in Madurai which has since evolved into a centre of excellence in development education. He took a keen interest in Development Management and had a special corner for NGOs in the development sector. He believed in work with a special focus on the disadvantaged groups by motivating development professionals to build people. He has left behind his rich work and the contribution to the sector. He passed away last year and it is befitting that BASIX has instituted memorial lecture in his memory. In choosing the topic for today’s lecture, I was motivated not only by the importance that Prof. Gupta placed on rural development but also by the fact that rural finance, which has been the field of my experience, where co-joined with rural development facilitates in generating the critical mass required for progress. I have therefore decided to go back to first principles and review some of the recommendations of the All India Rural Credit Survey Committee (AIRCS) to see where they point in today’s context. I would like to dwell upon on three aspects, viz. Major recommendations of AIRCS Their relevance today and The way forward to make rural India strong and vibrant.


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As you are aware, the AIRCS remains the seminal report on rural finance. Describing India, the AIRCS had said, “India is essentially Rural India and Rural India is virtually the cultivator, the village handicraftsman and the agricultural laborer.” Rural India, where two thirds of all Indians live, still depends heavily on agriculture and allied activities. While this is so, the share of agriculture in GDP has reduced from the time of the Survey. Even within the sector, contribution from crops especially cereals has decreased and that of plantation, dairy, fruits and vegetables, poultry etc. has increased. The nonfarm sector contribution has also gone up. Thus, rural India is becoming an increasingly diversified market with a strong demand for credit for agriculture and non-agricultural purposes as also for savings, insurance and money transfers. The AIRCS was one of the first reports that systematically assessed and analyzed the problems, issues and the policies to be adopted in providing credit to rural people. The major recommendations made by the committee were implemented by the RBI and Government of India. The report, as is well known, was eloquently written and Aubrey Menen, the Irish-Indian novelist once said that it was the best piece of Indian writing in English, he had ever read. The Report vividly portrayed the rural credit scenario under which people mostly cultivators, operated at that time and the dynamics of the interrelationship between the cultivators arid the lenders, both formal and informal. The recommendations relating to rural credit were made more than half a century ago, when the country was pursuing an import substitution policy to attain self-sufficiency in food production. There has since been a paradigm shift favoring a deregulated financial market. The current thrust is on ‘‘Sound banking based on prudential norms on the one hand and an agrarian crisis looming large on the other…. between a high growth on the one hand and farmers’ suicides on the other. In such a scenario, do the recommendations made by the Committee have any validity? Let us see….. In the first place, the Committee laid the foundations of a sound rural credit policy, on which the edifice of the subsequent rural credit policies was assiduously built


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Highlighting that, unlike industrial finance, agricultural credit is usually the least institutional and the most dispersed of all types of finance, the Report makes a pithy statement on the role of agricultural credit and I quote ‘‘Agricultural credit is problem when it cannot be obtained; it is also a problem when it can be had but in such a form that on the whole it does more harm than good. It may be said that, in India, it is this two-fold problem of inadequacy and unsuitability that is perennially presented by agricultural credit”. Not surprisingly, even after more than five decades of the Report, we are still grapping with the issues of adequacy, timeliness, suitability and exclusion from institutional credit….. and this is indeed one of the reasons why the rural sector is still in the grip of informal credit markets, characterized by high rates of interest. The NSSO finding that non- institutional sources are responsible for providing 57.5 percent of the total credit substantiates the observation of the committee. On the continued dominance of the money lenders in the rural credit market, the committee observed that despite all measures to control, suppress or supplant the moneylender, we are led to the suggestion that any realistic system of rural credit should seek to incorporate him in itself rather than compete with him or wishfully expect to eliminate him. Unless sufficient finance, mainly for production, but where necessary, also for consumption, is institutionally provided for, the objective of devising an effective alternative to the moneylender is bound to be frustrated”. Prophetic words indeed! The present rural credit policy has not only finally recognized the need for providing consumption loan as an inbuilt component of the loans disbursed by the institutional credit (microfinance, KCC) but a recent RBI report has also articulated the view that under certain safeguards, the activity of money lending can be mainstreamed through a system of accredited loan providers to be a part of the banking system1’. 1 Report of the technical group to review legislation on Money lending,. July 2007


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Let me draw your attention to the philosophy of rural credit policy propounded by the Committee and on which its recommendations were based. The Report states that “the two important considerations to be kept in mind in a scheme of reorganization are the adequacy of resources available to the credit organization and the adaptation of the operations of the organization to the needs of those producers who, for various reasons, now fail to obtain adequate credit ….. One of the objectives of policy has to be the creation of conditions in which cooperative and other institutions will function effectively in the interest of rural production and for the benefit of the rural producer for which necessary assistance, has to come from the State.” The recommendations of the Committee stemming from these objectives were aimed at building up an integrated scheme of rural credit which facilitated augmentation of rural production and rural incomes and covered wide ranging aspects, including • Defining the role of the state and RBI: • Establishment of the State Bank of India for purveying rural credit by commercial banks; • Reforms in the cooperative credit structure-both short term and long term: • Finance for reorganization and development of rural credit: • Setting up the National Co-operative Development and Warehousing Board and • Underscoring the role of marketing. Many of these recommendations were accepted and implemented. The growth of the rural credit delivery system in the last half- century or more is largely the result of the implementation of these recommendations. The Committee envisaged the importance of building financial resources that would be required to meet the ever increasing demand for rural credit and recommended the constitution of the National Agricultural Credit (Long-term Operations) Fund and the National Agricultural Credit (Stabilization) Fund with the Reserve bank of India. These Funds were set up to ensure state partnership in strengthening cooperative credit institutions by way of subscribing to the share capital of these institutions and for RBI’s lending to SCBs / DCCBs and Land Development Banks. The Stabilization Fund was intended to prevent serious dislocation to the system of co-operative credit in the event of famine, drought, etc., by way of conversion of short tern loans to medium term loans.


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The NAC (LTO) Fund was established in 1956, with an initial non-recurring contribution of Rs.10crores and an annual recurring contribution of not less than Rs. 5 crores. The amount in the NRC (LTO) Fund2 is of the order of Rs.13, 615crores. Similarly RBI set up the NAC (Stabilization) Fund in 1956 with an initial contribution of Rs.1crore. The amount in the Fund was Rs.1544 crores (as on 31 March 2008). The Committee also recommended the setting up NAC (Relief and Guarantee) fund under the then Ministry of Food and Agriculture, Government of India (GoI) by way of annual contribution of at least Rs.1 crore by GoI. The Fund was to be used for giving relief to co-operative credit institutions through grants for the purpose of writing off of irrecoverable arrears where these had assumed a magnitude threatening the very stability of the co-operative structure. The State Governments were also to create similar Funds. The objective of the exercise was to enable the State Governments to meet their financial obligations in the writing off of such loans as well to meet liabilities arising from guarantees given by them in respect of long-term credit Structures. I am pointing out this recommendation of the Committee to highlight the foresight and vision the Members had. The creation of such a Fund to take care of credit risks induced by climatic shocks is still relevant. In the past, when both the GoI and State Governments had announced loan waivers, they were hard put to find ways and means for mobilizing the resources to meet the financial obligations to the credit institutions. Even recently, the Task Force under the Chairmanship of Dr. A. Vaidyanathan for the revival of the co-operative credit structures has worked out a financial package involving an amount of nearly Rs.19, 000 crores for taking care of their financial impairment. Perhaps, the creation of such a Fund at various levels would have met, at least partially, the huge requirement of financial resources for the package. 2 NAC (LTO) Fund was renamed as NRC (LTO) Fund on the recommendation of the CRAFICARD and is maintained by NABARD.


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We have had a spate of loan waivers in the recent past to deal with the problem of distress due to indebtedness and facilitating re-entry into the formal credit system. It should be worthwhile for State Governments to earmark a portion of calamity-relief fund for meeting the debt relief required due to repeated distress and ensure that such a fund is actually funded and invested outside the government finances say, in Central government securities. This is especially true for rural cooperatives which face concentration risk on account of large exposure to crop loans. An important recommendation of the Committee related to the setting up of Advisory Council and Standing Advisory Committee (SAC) on Agricultural Credit for advising the Reserve Bank from time to time on various policy matters. The Advisory Council comprised officials of RBI, MoF/ MoA, NCDC and NWHC, for reviewing policies while the Standing Advisory Committee was more broad-based with representation from RBI, Planning Commission, economists and non-official co-operators. Over the years the Advisory Council and the SAC on agricultural credit have become defunct. In my opinion, the revival of such a system for tendering advise is very much called for, at an appropriate institutional forum, in view of the present agrarian crisis and the need to reach the avowed goal of attaining 4 per cent annual growth for the agricultural sector. Recognizing the need for ensuring coordinated functioning of the short-term and long term structure under the cooperative’ credit arrangement, the committee recommended their integration in terms of management, direction and administration while being independent legally and financially. The only state to experiment with this type of integration is as Andhra Pradesh on the ground that there are advantages in terms of common organizational culture, governance, reduced transaction costs for the borrower under the single window concept.


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Interestingly, the Vaidyanathan Committee on the long term structure has recommended that both the structures should perform common functions and provide similar products to their members in a set-up which allows institutional changes to be made in their functioning according to market forces. In other words, what the Vaidyanathan Committee has recommended is a merger of functions under an enabling legal, institutional and regulatory framework which will lead to the evolutionary merger of the LT and ST CCS in future. Having articulated some thoughts on the recommendation of the Survey Committee and its relevance today, I now turn to some of the steps we need to take now.

1. Early Warning System The first of such action points is the need for putting in place an early warning system to deal with distress. Basically, in India, we deal with distress post-facto and the question is whether it can be modeled as a preventive measure. For this, it may be necessary to identify distress conditions. Various committees have profiled distress features like. • Deceleration of growth in agriculture production; • Technology fatigue; • Declining profitability; and, • Increasing stress on irrigation resources etc. These factors, combined with other seasonal indicators like • Rainfall below normal level by 20 percent, • Erratic distribution of rainfall, • Drop in net area sown by more than 10% as compared to the previous agricultural season, • Noticeable drop in off- take of agricultural inputs like certified seeds, fertilizers etc. could be selectively used for developing an Index of Agrarian Distress. The Ministry of Agriculture in coordination with the ICAR, State Agriculture Departments and institutions like IMD, NCAER could be vested with the responsibility of preparing Model Early


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Warning System based on such an Index. When it becomes evident that there are clear indications of emerging distress, the district administration could come out with an announcement of its being conscious of the situation and announcing preparedness for undertaking relief measures. This in itself would provide a level of comfort to those affected by such conditions and also send a signal to the banking system to be prepared for providing debt relief measures. Equally, it is important to put in place preventive measures to obviate distress. These would be wide ranging from • Improving rural connectivity; • Proper pricing of water, power and other inputs so as to optimize use of scarce resources; • Specific intervention for bridging yield and technology gaps; • As also extension services to focus on diversification of agriculture to allied activities: and • Non-farm activities in the secondary and tertiary sectors especially in dry areas and where the comparative advantage for agriculture is low. Dealing with price risk is equally important- the ingenuity will be in devising a scheme which does not impose huge subsidies and holding of huge inventories.

2. Credit Guarantee Scheme Farmers are exposed to a variety of risk, including systemic risks. I believe that a Credit Guarantee Scheme to address the problems of systemic risks is necessary. The Johl Committee set up by RBI had recommended such a scheme for small farmers. The salient features of the scheme are as follows: • The Scheme is compulsory for all banks. • Individual farmers or group of individual farmers engaged in agriculture or allied activities will be eligible. • Claims will be 75 per cent of the eligible credit facilities subject to a ceiling of Rs.1 lakh. • Claims will be settled only after banks have invoked all other insurance/other covers available in respect of the credit facilities and written-off and waived the residual dues (portion not covered under the scheme, i.e., 25 percent). • Borrowers, whose claims have been settled under the scheme, will be eligible for fresh finance from the banks. • Banks will pay a guarantee fee on the aggregate amounts outstanding of the eligible amount.


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Perhaps, due to the recent loan waivers there has been no progress in this regard. If we have to encourage banks to continue lending to the agriculture sector, it is necessary to envisage such a scheme with a clear statement of public policy that there will be no more loan waivers. While there is no doubt that distress was being faced by farmers due to high indebtedness and large overdues were preventing access to fresh lending, it is important to note that the write off schemes and waiver schemes do not, and in some ways cannot, deal with debt to the informal sector which in many cases is non- transparent and illegal. Further, uniform debt waivers with no relationship to natural calamities etc, tend to penalize those who have paid their dues in a timely fashion and reward the defaulters. This is not conducive for a good credit culture which is a sine qua non for a sound credit and sustainable credit system. It is remarkable to note that the AIRCS at no stage talked of write-off or waiver. They suggested the stabilization fund to convert short term dues into long term. It is also important to note that in a recent speech Prof Yunus has mentioned how Grameen never forgives debt-it only reschedules and how ever long term the rescheduling is for, the interest never exceeds the principal. We have similar rules for small borrowers and these needs to be enforced- for example the dam duppat rule. Debt waivers and reliefs other than for repeated natural calamities must be eschewed in an public policy as they severely erode the credit system. A credit guarantee scheme supported by the Government is much preferable to any scheme of waiver/writes off. 3. Cyclical Credits I believe that we need to try out a cyclical credit arrangement on a pilot basis. Cyclical credit is a way to break the vicious cycle of low productivity, low income, and low surplus and low repayment capacity in drought prone areas characterized by rain-fed farming. The pivot of cyclical credit is the matching of the ‘‘Credit Cycle’’ with the “weather Cycle’’. The rationale underlying cyclical credit is that even with the adoption of dry land farming technologies; the effect of weather aberrations on yields during bad years can be moderated. In such a situation, it is necessary to send a strong signal to the farmers in these areas that banks will stand by them to provide the required crop loan, irrespective of the repayment constraints as induced by the weather cycle and that they will not face any resource constraint in carrying out their farm operations. Co-jointly, there should be an institutional mechanism to absorb unpaid accumulated debt at the end of the weather cycle.


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Despite its limited success, there is a need to take a re-look at the concept or implementation in all the drought as well as cyclone prone areas after pilot testing it in select areas in the identified distressed districts. With a possible tie-up with the Credit Guarantee Scheme and other risk mitigation arrangements, the probability of success of the cyclical credit scheme could be significantly enhanced. Following the recommendations of the Radhakrishna Committee, the RBI has advised banks in August 2008 to experiment with the cyclical credit scheme in a few rain fed areas and based on the response to extend it to other areas. It will be useful if banks are able to share their experiences in implementing this product. 4. Agricultural Development Fund The Expert Group on Agricultural Indebtedness has identified 100 agriculturally backward districts across the country, Inter-alia, for stepping up public investments in agriculture sector and accelerating the flow of credit for capital formation as well as supporting seasonal agricultural operations. While the Radhakrishna Expert Group has recommended the creation of a Fund for Agricultural Development with NABARD, it has not spelt out the details of the sources for such a fund. In this context, I believe that it is extremely important to have a focused plan of development for the identified distressed districts. Such a plan has to be an integrated one with support from the State Government machinery for providing the backward and forward linkages. I suggest that NABARD should make an assessment of the potential for farm and non-farm activities and the rural infrastructure needed in these distressed districts. Specific projects for rural infrastructure may then be catalyzed for funding under the RIDF. The lead banks could be asked to prepare specific credit plans on the assumption that the potential identified would be realized in various activities for which the marketing linkages etc would also be a part of the plan. Implementation of this plan should be the key agenda of the DCC as the Collector could then hold the concerned departmental officials accountable for meeting their commitments for providing infrastructure and linkages to ensure that the schemes included in the plan are bankable and result in tangible increase in incomes. 5. Debt Redemption Product It has been estimated that private moneylenders accounted for Rs.29, 000 crore of farmers’ debts in 2003 and that about Rs.18, 000 crore of such debts carried interest rate of more than 30 per cent.


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In order to relieve such farmers from the clutches of moneylenders, the Radhakrishna Group has recommended transferring these debts to institutional agencies by setting up a Moneylenders Debt Redemption Fund of Rs.100 crore for meeting administrative and other expenses. Even earlier, under the Finance minister’s package for doubling of agriculture credit, there was a provision for redemption of money lender’s debt. The progress under this scheme has been slow and the amount so far disbursed by the banking system has been of the order of Rs.105 crore. A study revealed that lack of institutional arrangements at ground level for identifying the moneylenders and their debtors and affecting this kind of transfer was one of the reasons for unsatisfactory progress under the scheme. It is also quite likely that the portion of high interest bearing debt to non- institutional sources estimated at Rs 18,000 crore in 2003 could have now assumed greater proportions, this would mean that the banking system has to be prepared to lend to the required extent for this purpose. The Debt Swap Scheme implemented in Andhra Pradesh under the Indira Kranti Patham, in which the voluntary declarations by the members of the SHG about the extent of their indebtedness to money lenders has helped in redeeming such debts. This system could be replicated in other distressed areas. The State Government of Andhra Pradesh also provided interest subsidy to ensure that banks did not incur any income losses. This problem has several dimensions. There would be reluctance to disclose the true indebtedness and opt for debt swap scheme unless the rural households’ has confidence about his / her ability to access the formal credit system in a hassle free manner. Hence, working through SHGs may be a good idea. Perhaps, banks can work with the SHGs that have been linked to them for a long period and offer a product that will enable the members to swap their family debt to the moneylenders with fresh loans from the banks. It may be necessary for the bank to consider individual loans to SHG members for this purpose as group guarantee may not be forthcoming. Depending on the track record of the specific member to the SHG, banks could lay down conditions under which such debt swap could be available. State Governments could provide some assistance to incentivize this scheme. State-level Bankers Committees (SLBCs) could perhaps also work on this.


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6. Business Correspondent Model-Changes Proposed RBI has permitted banks to use the services of NGOs /SHGs, MFIs and other Civil Society organizations as intermediaries in providing financial and banking services through the use of Business Facilitators (BE) and Business Correspondent (BC) Models. While there is some response, the scheme has not up-scaled significantly as expected. This could be on account of the fact that transaction cost recovery from customers is not allowed as this is expected to be met by the BC out of his commission. In the early periods till volumes grow, the margins available in the commissions currently paid by banks are not considered sufficient to meet the costs. There is clearly some initial support that is required for up-scaling and banks need to view such cost as initial investment. The banking system has not yet been able to fully appreciate the business gains that could accrue from adopting the model. Following recommendations in respect of the BC Model are made: In places where suitable institutions, viz., NGOs, SHGs, etc., are not available, any person especially local ration / kirana shops etc may be permitted to act as BCs, where banks have an existing relationship with such person that is satisfactory and the person has established roots in the locality to prevent unscrupulous persons becoming BCs. As recommended by the Rangarajan Committee on Financial Inclusion, MF-NBFCs may also be allowed to act as limited BCs of banks for only providing savings services. In districts featuring high levels of exclusion, MF-NBFCs may be permitted to act as BCs of banks. Banks may formulate an incentive mechanism for BCs by suitable linking it to the number of accounts opened and transactions put through by them.

7. Designated Nodal Branches (ADB Model) Another suggestion is that one branch of the lead bank at the block / taluka level may be identified as the nodal branch to address the issue of gaps in field support / extension and technical assistance for farm and non farm sector.


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Lead banks may strengthen these nodal branches with technical staff to provide agricultural/business development services in farm and non-farm sectors respectively, comprising technical inputs and extension services. The services of the nodal branch technical staff may be made available to all other branches in the block under an appropriate cost sharing arrangement. In some districts, where RRBs have a dominant presence, sponsor banks may assist the RRBs putting in place arrangements for technical staff for providing credit plus services. NABARD may defray the cost of such technical staff, particularly, in the North-Eastern Region. 8. Business Correspondent/Technology Touch Points in Each Village Technology can play a crucial role in securing financial inclusion for the excluded households through the dissemination of information regarding the variety of financial products for potential users. At the same time, it can provide

• Cost-effective solutions, • Address security concerns of the financial institutions and • Increase outreach. The BF / BC, when equipped with adequate technology support, can provide a touch point at each panchayat level and integrate them with the banking system and also achieve financial / credit inclusion. The Village Knowledge Centre (VKC), to be provided in each Gram Panchayat under the RIDF mode could be considered as BC and provide financial services through the ICT based solutions. NB could incentivize banks through meeting a part of the cost horn the FITF.

9. Special Role for Regional Rural Banks (RRBs) RRBs, in their post-merger position, are best placed to provide an institutional thrust for financial inclusion. This is because they will be recapitalized to attain standard capital adequacy ratios and will benefit from economies of scale emerging from their larger size and scale of operations. However, it has to be ensured that there is a firm reinforcement of their rural orientation, with a specific mandate for financial inclusion.


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RRBs account for 37 percent of rural offices of all scheduled commercial banks and 91 percent of their workforce is deployed in rural and semi-urban areas. They account for31 percent of deposit accounts and 37 percent of loan accounts in rural areas, clearly demonstrating their extended outreach among the rural poor. More significant is the fact that RRBs have a share of 33 percent of credit linked SHGs at the national level and in backward regions where financial exclusion is server; the share of RRBs in SHG bank credit linkage is significant at 56 percent in NER, 48 percent central and 40 percent in eastern region. It is, therefore, essential that in any evolving strategy for financial inclusion, RRBs should find a special place. The RBI report on providing RRBs with assistance to implement ICT based solutions for FI must be implemented quickly. 10. SHG Bank Linkage The SHG Bank linkage program has been considered the most significant initiative in recent years in delivering financial services to the rural poor in a sustainable manner. More than 3 million SHGs, with nearly 45 million members access financial services through a simple arrangement. NABARD has identified 13 States with large population of the poor and the programme has been given a fresh impetus in these States, As NGOs have played a significant role in promoting, nurturing and bank- linking of SHGs there is a need to evolve an incentive package for NGOs to diversify into these backward regions. Further, the SHG movement is now more than 17 years old and a large number of groups wish to expand and diversify their roles. Many of the groups are organizing themselves into federations and other higher level structures. As these federations can play a useful role in providing various support services to SHGs, it may be necessary to study and evolve a model of a federal structure, voluntary in nature and beneficial to the SHGs. More importantly the needs of the SHG members are growing in size and there is need for applying our minds to whether group guarantee model needs to be supplemented with providing individual loans. NB could take the lead to set up a Group to revisit the SHG bank linkage model from this angle as also to allow SHG members to migrate to micro entrepreneurs.


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11. Micro-Insurance It has been repeatedly emphasized that micro-credit without micro-insurance is self- defeating. The poor face more risks and the impact is more severely felt on them. Micro- insurance needs a firm push and product innovations combined with operational guidelines from the regulator and viability gap funding initially from the government will be necessary. There is considerable work to be done in this direction. 12. Demand—side Initiatives The efforts toward greater financial inclusion have so far mainly addressed issues concerned with improving the supply side or financial services deliver systems. It is an important observation that many regions, sub-sectors of the agrarian economy and segments of rural population exhibit a weak demand for financial services for strengthening the demand side, we may have to look at strengthening the economic and social infrastructure, including health and education, market linkages, risk mitigation arrangements etc. Apart from this, procedural changes like

• Simplifying mortgage requirements, • Exemption of stamp duty for agricultural loans below Rs.one lakh and • Adoption of a credit-plus approach for providing farm advisory services to small/marginal farmers would go a long way in strengthening the demand side. Computerization of land records and introducing a simple NOC and no dues certificate system will facilitate a surge in demand for agricultural credit.

Way Forward The financial system in India has grown rapidly in the last three decades. The functional and geographical coverage of the system is truly impressive. Nevertheless, data do show that there is exclusion and that poorer sections of the society have not been able to access adequately financial services from the organized financial system. There is an imperative need to modify the credit and financial services delivery system to achieve greater inclusion.


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The Report of the Committee on Financial Inclusion has sought to address some of the issues for improving the delivery system. The suggestions that I have made can help to modify particularly the credit delivery system of the banks and other related institutions to meet the credit requirements of marginal and sub-marginal farmers in the rural areas in a fuller measure. However, creating an appropriate credit delivery system is only a necessary condition. This needs to be supplemented by efforts to improve the productivity of small and marginal farmers as well as other borrowers so that the credit made available can be productively employed. While banks and other financial institutions can take some efforts on their own to improve the absorptive capacity of the borrowers, it is equally important for the government at various levels to initiate actions to enhance the earnings capacity of the poorer sections of the society. The two together can bring about the desired change of greater inclusion quickly. I conclude by once again thanking the organizers for having given me this opportunity of sharing my thoughts with you. It has been a great opportunity and I am grateful for it.

Notes


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About the Speaker Dr. Y.S.P. Thorat is former Chairman, of NABARD with wide experience in rural finance, microfinance and agricultural indebtedness. He was associated as member of various International Committees like Advisory Committee for Microcredit Summit Campaign, Halifax (2006), Banking Specialist, UN-FAO Mission to Ethiopia (2001), Rural Banking Specialist UNOPS Mission to Maldives (2000), among others. He holds a degree in political science and Law from Shivaji University, Kolhapur. He has done his Ph.D. from Shivaji University, Kolhapur and also Ph.D. in progress from University of Reading, U.K. He started his career as Manager in Reserve Bank of India (RBI) in 1972 and rose to the position of Executive Director in 2003. He left RBI in 2004 to take up appointment as Managing Director, National Bank for Agriculture and Rural Development (NABARD) and retired as Chairman of NABARD (2006-07). As a Visiting Lecturer, he has visited various Universities like University of Reading, UK, University of Manchester and University of Geneva. He has published various monographs and research papers during his career on various subjects like cooperative banks in India, primary non-agricultural credit societies, etc.

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About BASIX and B-A-LAMP RGML Text.pdf · 2018. 3. 28. · About BASIX and B-A-LAMP BASIX Established in 1996, BASIX is a new generation livelihood promotion institution working with