Scaling-up Access to Finance for India's Rural Poor
Since the early national plans, successive governments in independent India have emphasized the link between improving access to finance, and reducing poverty - a stance that has had influence globally. The need to improve financial access for Indi...
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| Format: | Other Financial Sector Study |
| Language: | English en_US |
| Published: |
Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/12/5662664/india-scaling-up-access-finance-indias-rural-poor http://hdl.handle.net/10986/14389 |
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okr-10986-14389 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ADVERSE SELECTION ASSET CLASSIFICATION BANK ACCOUNTS BANK BRANCHES BANKING CRISES BANKING SERVICES BANKS BONDS BORROWING BROKERS CAPITAL ADEQUACY CAPITAL REQUIREMENTS CAPS COLLATERAL COMMERCIAL BANKS COOPERATIVE BANKS COST SAVINGS CREDIT CREDIT CARDS CURRENT EXPOSURE DEBT DEFAULT RISK DEPOSITS DEREGULATION DERIVATIVES ECONOMICS EXPENDITURE EXPENDITURES EXPOSURE FINANCE COMPANIES FINANCE INSTITUTIONS FINANCIAL DISTRESS FINANCIAL INTERMEDIATION FINANCIAL NEEDS FINANCIAL SERVICES FINANCIAL SYSTEM FINANCIAL TRANSACTIONS FUTURES GRAMEEN BANK INCENTIVE FRAMEWORK INCOME INSTITUTIONAL STRUCTURES INSURANCE INSURANCE COMPANIES INTEREST RATE INTEREST RATES L C LAWS LEGAL FRAMEWORK LINKAGES MICROFINANCE NATIONALIZATION OBLIGATION PORTFOLIOS PRIVATE BANKS PRIVATE SECTOR REGULATORY FORBEARANCE REGULATORY FRAMEWORK RESERVE BANK OF INDIA RISK MANAGEMENT RURAL BANKS SAVINGS SAVINGS ACCOUNTS SECURITIZATION SERVICE PROVIDERS SMALL LOANS SMART CARDS TRANSACTION COSTS VULNERABILITY |
| spellingShingle |
ADVERSE SELECTION ASSET CLASSIFICATION BANK ACCOUNTS BANK BRANCHES BANKING CRISES BANKING SERVICES BANKS BONDS BORROWING BROKERS CAPITAL ADEQUACY CAPITAL REQUIREMENTS CAPS COLLATERAL COMMERCIAL BANKS COOPERATIVE BANKS COST SAVINGS CREDIT CREDIT CARDS CURRENT EXPOSURE DEBT DEFAULT RISK DEPOSITS DEREGULATION DERIVATIVES ECONOMICS EXPENDITURE EXPENDITURES EXPOSURE FINANCE COMPANIES FINANCE INSTITUTIONS FINANCIAL DISTRESS FINANCIAL INTERMEDIATION FINANCIAL NEEDS FINANCIAL SERVICES FINANCIAL SYSTEM FINANCIAL TRANSACTIONS FUTURES GRAMEEN BANK INCENTIVE FRAMEWORK INCOME INSTITUTIONAL STRUCTURES INSURANCE INSURANCE COMPANIES INTEREST RATE INTEREST RATES L C LAWS LEGAL FRAMEWORK LINKAGES MICROFINANCE NATIONALIZATION OBLIGATION PORTFOLIOS PRIVATE BANKS PRIVATE SECTOR REGULATORY FORBEARANCE REGULATORY FRAMEWORK RESERVE BANK OF INDIA RISK MANAGEMENT RURAL BANKS SAVINGS SAVINGS ACCOUNTS SECURITIZATION SERVICE PROVIDERS SMALL LOANS SMART CARDS TRANSACTION COSTS VULNERABILITY World Bank Scaling-up Access to Finance for India's Rural Poor |
| geographic_facet |
South Asia India |
| description |
Since the early national plans,
successive governments in independent India have emphasized
the link between improving access to finance, and reducing
poverty - a stance that has had influence globally. The need
to improve financial access for India's poor, the
overwhelming majority of whom are concentrated in rural
areas, motivated the nationalization of commercial banks in
the late 1960s, and an aggressive drive through the 1970s
and 1980s, to expand rural banking, coupled with policies
mandating banks to provide subsidized credit to rural
households. The 1990s saw the partial deregulation of
interest rates, a gradual reduction in the Government's
stake in commercial banks, and increased competition in the
banking sector. Access to finance for the rural poor has
improved somewhat over the past decades, with the public
sector commercial banks being the dominant players in the
formal rural finance market. Yet, the vast majority of
India's rural poor, still do not have access t o formal
finance. The report examines the reasons, and factors
affecting both banks, and their clients. First is the
problem of uncertainty - about the repayment capacity of
poor rural borrowers, and their irregular/volatile income
streams and expenditure patterns - which, in the absence of
credit information, drive up default risk. Second, the
transactions costs of rural lending in India are high,
mainly due to small loan sizes, high frequency of
transactions, large geographical spread, and heterogeneity
of borrowers, and widespread illiteracy. Third, the
Government policies have made things worse from the
banks' perspective, creating a "financial
climate" not conducive to lending in general, and rural
banking in particular. New approaches and products to
improve rural access to finance in India are reviewed,
namely, the 'Self-help Groups (SHGs) Bank Linkage'
model, the growth of which - from just 500 SHGs linked to
banks in the early 1990s, to over 700,000 in 2003 - has been
truly remarkable; specialized microfinance institutions;
and, partnerships between private Banks,, micro-financiers,
and service providers, including the Kisan Credit Card.
Furthermore, a potential means of reducing default risk in
rural finance, that has recently caught the attention of the
Government, is the establishment of a "warehouse
receipts system' to cover the agricultural risk
management of products for farmers. The policy agenda to
improve access to finance by the rural poor looks at
introducing flexible products; the need for composite
financial services; simplified procedures to access finance;
and, improved staffing policies and doorstep banking,
including an enabling policy, legal and regulatory
environment for micro-finance.While the importance of
microfinance in consumption-easing should not be
underestimated, its success in budding up poor peoples'
assets, over the medium term, would much depend on efforts
directed at providing assistance in skills development,
technology and marketing - all of which are critical to
ensuring that investments made by poor households, reap
returns and contribute to a sustained increase in incomes
and improvements in rural livelihoods. |
| format |
Economic & Sector Work :: Other Financial Sector Study |
| author |
World Bank |
| author_facet |
World Bank |
| author_sort |
World Bank |
| title |
Scaling-up Access to Finance for India's Rural Poor |
| title_short |
Scaling-up Access to Finance for India's Rural Poor |
| title_full |
Scaling-up Access to Finance for India's Rural Poor |
| title_fullStr |
Scaling-up Access to Finance for India's Rural Poor |
| title_full_unstemmed |
Scaling-up Access to Finance for India's Rural Poor |
| title_sort |
scaling-up access to finance for india's rural poor |
| publisher |
Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/12/5662664/india-scaling-up-access-finance-indias-rural-poor http://hdl.handle.net/10986/14389 |
| _version_ |
1764428969233350656 |
| spelling |
okr-10986-143892021-04-23T14:03:18Z Scaling-up Access to Finance for India's Rural Poor World Bank ADVERSE SELECTION ASSET CLASSIFICATION BANK ACCOUNTS BANK BRANCHES BANKING CRISES BANKING SERVICES BANKS BONDS BORROWING BROKERS CAPITAL ADEQUACY CAPITAL REQUIREMENTS CAPS COLLATERAL COMMERCIAL BANKS COOPERATIVE BANKS COST SAVINGS CREDIT CREDIT CARDS CURRENT EXPOSURE DEBT DEFAULT RISK DEPOSITS DEREGULATION DERIVATIVES ECONOMICS EXPENDITURE EXPENDITURES EXPOSURE FINANCE COMPANIES FINANCE INSTITUTIONS FINANCIAL DISTRESS FINANCIAL INTERMEDIATION FINANCIAL NEEDS FINANCIAL SERVICES FINANCIAL SYSTEM FINANCIAL TRANSACTIONS FUTURES GRAMEEN BANK INCENTIVE FRAMEWORK INCOME INSTITUTIONAL STRUCTURES INSURANCE INSURANCE COMPANIES INTEREST RATE INTEREST RATES L C LAWS LEGAL FRAMEWORK LINKAGES MICROFINANCE NATIONALIZATION OBLIGATION PORTFOLIOS PRIVATE BANKS PRIVATE SECTOR REGULATORY FORBEARANCE REGULATORY FRAMEWORK RESERVE BANK OF INDIA RISK MANAGEMENT RURAL BANKS SAVINGS SAVINGS ACCOUNTS SECURITIZATION SERVICE PROVIDERS SMALL LOANS SMART CARDS TRANSACTION COSTS VULNERABILITY Since the early national plans, successive governments in independent India have emphasized the link between improving access to finance, and reducing poverty - a stance that has had influence globally. The need to improve financial access for India's poor, the overwhelming majority of whom are concentrated in rural areas, motivated the nationalization of commercial banks in the late 1960s, and an aggressive drive through the 1970s and 1980s, to expand rural banking, coupled with policies mandating banks to provide subsidized credit to rural households. The 1990s saw the partial deregulation of interest rates, a gradual reduction in the Government's stake in commercial banks, and increased competition in the banking sector. Access to finance for the rural poor has improved somewhat over the past decades, with the public sector commercial banks being the dominant players in the formal rural finance market. Yet, the vast majority of India's rural poor, still do not have access t o formal finance. The report examines the reasons, and factors affecting both banks, and their clients. First is the problem of uncertainty - about the repayment capacity of poor rural borrowers, and their irregular/volatile income streams and expenditure patterns - which, in the absence of credit information, drive up default risk. Second, the transactions costs of rural lending in India are high, mainly due to small loan sizes, high frequency of transactions, large geographical spread, and heterogeneity of borrowers, and widespread illiteracy. Third, the Government policies have made things worse from the banks' perspective, creating a "financial climate" not conducive to lending in general, and rural banking in particular. New approaches and products to improve rural access to finance in India are reviewed, namely, the 'Self-help Groups (SHGs) Bank Linkage' model, the growth of which - from just 500 SHGs linked to banks in the early 1990s, to over 700,000 in 2003 - has been truly remarkable; specialized microfinance institutions; and, partnerships between private Banks,, micro-financiers, and service providers, including the Kisan Credit Card. Furthermore, a potential means of reducing default risk in rural finance, that has recently caught the attention of the Government, is the establishment of a "warehouse receipts system' to cover the agricultural risk management of products for farmers. The policy agenda to improve access to finance by the rural poor looks at introducing flexible products; the need for composite financial services; simplified procedures to access finance; and, improved staffing policies and doorstep banking, including an enabling policy, legal and regulatory environment for micro-finance.While the importance of microfinance in consumption-easing should not be underestimated, its success in budding up poor peoples' assets, over the medium term, would much depend on efforts directed at providing assistance in skills development, technology and marketing - all of which are critical to ensuring that investments made by poor households, reap returns and contribute to a sustained increase in incomes and improvements in rural livelihoods. 2013-07-08T16:19:01Z 2013-07-08T16:19:01Z 2004-12 http://documents.worldbank.org/curated/en/2004/12/5662664/india-scaling-up-access-finance-indias-rural-poor http://hdl.handle.net/10986/14389 English en_US CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Washington, DC Economic & Sector Work :: Other Financial Sector Study Economic & Sector Work South Asia India |