Financial inclusion and empowerment of rural poor

— Dr Anuradha SarmahWith the introduction of banking sector reforms, the rural banking scenario in Assam has also changed completely due to some major policy changes. The poor recovery performance of banks in the rural areas has compelled them to reduce their volume of lending to rural poor borrowers in these areas. Moreover, it is found that even after the banking sector reform, a large section of rural poor are still excluded from the purview of formal banking network. However, in recent years, as a major policy development, significant changes have been noticed. The reform process has now given much emphasis on extension of banking coverage through inclusion of underserved population.

Through their massive micro finance programmes at affordable rates, they try to improve the socio-economic conditions of the rural poor. They are now trying to maintain a balance between profitability and sociability criterions. While the Government has emphasised on ensuring inclusive growth and the issue of rural development has been the core in the plans, it is really disheartening that the banks are not so keen to open branches is rural areas rather, become prone for urban orientation and profiteering motive. The Mid-term Annual Policy Statement 2005-06 of the Reserve Bank of India (RBI) has recognised that even with huge expansion of banking activities, the banking practices tend to exclude a vast segment of potential areas. To tackle the situation achieving greater financial inclusion by introducing the provision of ‘no frill’ accounts has been initiated as the key policy agenda for the banking sector. Significantly, this specific drive of the RBI is given impetus by the Report of the Usha Thorat Committee on ‘Financial Sector Planning and Development for the North-east’ which was constituted in January, 2006. The Committee has strongly emphasised on extension of banking coverage and provision of financial services. Financial inclusion relates to expanding access to banking services for the underserved population. In other words, it means the extension of the provision of financial product and services provided by the formal financial system at an affordable rate to those who have still remained deprived or underserved.

Since a major portion of our total population is still living in the rural areas and are starved with poor economic conditions, so the banks will have to perform more works for the upliftment of the economic conditions of the rural poor. With a view to achieve greater financial inclusion, the RBI has exhorted the banks to make provision of ‘no frill’ accounts either with nil or very low minimum balance as well as service charges to enable access to a larger population to the formal banking system. Recently, RBI has instructed all the banks to bring everybody under the banking network. Self-help groups (SHGs) and micro finance are the two most effective tools to make financial inclusion a reality.

In recent years, banking institutions have started to provide micro finance (including micro credit and micro saving) to the so-called poor rural borrowers whom the traditional banks earlier did not provide. The poor borrowers are mainly those who are living below the poverty line, i.e., the landless labourers, small businessmen, deprived women etc. The micro credit facilities are provided through various local NGOs and through formation of SHGs. Over decades, SHGs have been found to be the most effective tool to make financial inclusion a reality. As on March, 2007 25.50 lakh SHGs have taken bank credit of Rs. 14,320 crore across the country bringing four crore families under the banking network. At the moment, about 80,000 SHGs are functioning in the State and most of them are linked with banks and getting financial support.

To step up the process of financial inclusion in the State, several other important developments have taken place in the field of rural banking in Assam. Some innovative approaches sponsored by the Central Government are being experimented and operated by the commercial banks and NGOs in Assam alongwith the rest of the country with the active technical and financial support from NABARD. These approaches (PMRY, KCCs, EGS, SGSY etc.) aim to increase access to credit micro entrepreneurs, unemployed youths, agriculturists to the banks directly and through NGOs and to promote rural enterprises and entrepreneurship in a cost-effective and sustained manner. Though the concept of ‘financial inclusion’ is a new phenomenon, but the process of financial inclusion has started since the introduction of ‘linkage banking’ (Process of linking informal SHGs with formal banking system) in February, 1992 by NABARD as a means of providing micro finance to the unreached and disadventageous rural poor which envisages active involvement of NGOs for formation, nurturing, guiding and linking SHGs with banks. The SHG is mainly formed by those who are living below the poverty line and are unable to reach the formal banking system. Under this project as high as 98 per cent to 100 per cent of it loans are repaid timely by the rural poor borrowers. Similarly, formation of Assam Grameen Vikash Bank (AGVB) by merging four Regional Rural Banks (RRBs) is also a reformative step taken by the Government and the RBI as a part of their restructuring process in this direction. Having the largest network of branches, it has enough opportunity to utilise its competency under the auspices of financial inclusion

Undoubtedly, there is an ample scope for extending banking services to the rural poor borrowers. The banking institutions should not be concerned only with the economic problems (like poverty, unemployment, lack of capital etc.) but also with social problems (like low social status, lack of education, low standard of living etc.) of the rural poor. They must diversify their activities. Besides providing loans and accepting deposits, they should also perform some developmental functions and incorporate new issues and agendas of rural development. They should meet the challenge of rural banking and empowerment of rural poor through financial inclusion in a determined way without losing their commercial character and social responsibilities.
(The writer teaches Economics in Dhubri Girls’ College) source: assam tribune