Bank manager Jeyes Parthiban from South India argues that the banks can do much more with microfinance to help the poor lift themselves out of poverty.
In India, the history of rural credit, poverty alleviation and microfinance are inextricably interwoven. Any effort to understand one without reference to the others leads to a fragmented understanding of the entire picture.
After independence, India adopted a development strategy which saw institutional credit as a powerful instrument for enhancing productivity and reducing poverty. The view was that lending to the poor should be part of the normal business of banks and that the rural population should have access to sufficient and timely credit at reasonable rates of interest. Government and other leaders made generous statements pointing out, at every opportunity, the importance of poverty alleviation through rural credit. They drew a distinction between commercial lending and social-sector lending to the poor. The poor were not so much borrowers as beneficiaries in need of assistance. Very impressive and lofty slogans indeed.
But the attitude of the period was one of carefully disguised cynicism towards the poor. The poor were not seen as bankable. The view was that commercial principles could not be applied because the poor needed charity rather than loans. Once this mindset hardened it became more difficult for commercial banks to accept that lending to the poor could be a viable activity. The time was ripe for the idea of microfinance in the context of rural lending.
But the system had to wait for almost a decade for the concept of microfinance to become credible and available to the poor without any hold-back. Today, rural lending is an inseparable portfolio of the Indian banking system and microfinance is here to stay. These are a few of the achievements of microfinance since beginning in India:
- Reduced dependency on private money lenders and loan-sharks – although there is still a long way to go
- Reduced poverty and raised incomes through helping the poor to build assets and reduce their vulnerability
- Families spend more on education, resulting in better attendance and lower drop-out rates
- Women are empowered by increasing their assets and contribution to household income. They have more control over money matters and the decisions that affect their lives
- Reduced child mortality. Access to better nutrition and housing leads to better health and ability to combat disease
Another significant development has been capacity-building through self-help groups. The poor are encouraged to come together to pool their savings and to dispense small, unsecured loans to members on a needs basis. An estimated 24 million poor households have gained access to the formal banking system through such self-help programmes.
Notwithstanding these significant achievements, large sections of the population still don’t have access to financial services. A conservative estimate suggests that just 20% of people on low incomes have access.
A case of ‘poor banking’?
Thus, there is an urgent need to widen the scope and scale of financial services to reach the rest of India’s vast population.
The beneficiaries/rural poor also have a responsibility to make good and prudent use of the resources being made available to them. Every need must be addressed. Greed must find no place in the road to prosperity. Mistrust must give way to cooperation. They must demonstrate to the nation by their God-given sincerity and honesty that they can teach a lesson or two to anyone about hard work and reliability. Full-time employment and income generation will help ensure that the rural youth is not swayed or brainwashed by extremists into taking up arms. A complete transformation for the better of rural India is possible, based on honesty and unselfishness. The rural population is ready and waiting. Is the Government machinery also ready to go to the rural poor with innovation and inspiration?
Towards ‘Banking for the Poor’
Banking is a service-oriented holistic business. Rural lending must be given a very significant place rather than just a small part in its overall profit strategy. In a country like India, where the majority live and toil in rural areas, banking must be ‘people oriented not profit oriented’. Banks, through their rural branches, have played and continue to play an important role in providing financial services to the poor on a stand-alone basis. Still, the banks need to ask themselves searching questions about the quality and coverage of these portfolios and address the issues through appropriately structured policies and strategies. For example, they could:
- Ensure that banking services are available to the rural poor at their door steps by opening more rural bank-branches with on-line services
- Bring every household into the banking system by opening savings accounts and extending credit facilities to every eligible member in the household
- Cut the cumbersome, lengthy and time-consuming paperwork required to open an account or take a loan
- Think with the individual or group about what their need is and devise income-generating schemes, keeping in mind the local conditions. Less thinking for them and more thinking with them is what needed
- Deploy enough motivated staff with rural backgrounds in the rural branches, and ensuring that they are available, approachable and customer-friendly
- Encourage group lending. It binds people together. It helps them to be responsible not only to their group but to their village as well
- Formulate sympathetic and practical recovery schedules, especially at times of natural disasters
I believe that every man and woman has a right to dream of a better life with access to food, clothing, shelter, protected drinking water, electricity, good roads and education available for their children. I think it’s the responsibility of the banks to ensure that our less-privileged brothers and sisters get the opportunities and resources to help them help themselves to live in dignity and with self respect. This is not charity but duty.
Jeyes Parthiban was a senior bank manager in Salem, South India. He has long had an interest in microfinance. A short film about him, ‘Banking on Change’ by Pilgrim Films, can be seen online here.
English