Financial Liberalisation and Rural Banking in India

Has liberalization proved to be unsuccessful for the Indian rural economy?
Download 29 pages

This paper examines the effects of financial liberalization in India the impact of changes in banking policy and structure on the rural economy and on the rural poor in particular.

The paper argues that:

  • Financial liberalization has worsened regional inequalities in rural banking in India;
  • Non-government-organization (NGO) controlled microcredit projects do not reduce transaction costs, but transfer these costs to donors and borrowers.

The paper is divided in to the following sections:Credit and the rural economy examines:

  • The policies of financial liberalization in India;:
  • Credit needs of rural households;
  • Challenges to the supply of credit in rural areas and policies that attempted to solve these problems.

Banking policy in rural India: 1969 to the present discusses:

  • The introduction of "social and development banking" into rural banking;
  • The introduction of "directed credit";
  • The creation of Regional Rural Banks (RRBs).

Miracle cure: microcredit and self-help-groups looks at:

  • The features of microcredit;
  • The rising costs of non-government-organization (NGO) controlled microcredit.

Village studies reviews the results form five papers that report the findings of village surveys on rural credit in the contemporary period.

Institutional credit for rural India concludes the paper and argues that:

  • India needs large scale public investment in the countryside;
  • Commercial banks, RRBs and cooperatives must lead rural credit revival;
  • Public sector banking must extend its geographical and functional reach;
  • There is a need to reintroduces loans-cum-subsidy schemes.