The Hindu Business Line : `Extend micro-finance to rural areas'

HOUSEHOLDS need access to credit and not necessarily cheap credit, according to Dr T.G. Arun, Professor, Institute of Development Policy and Management, University of Manchester.

Delivering the first of the series of special lectures instituted by the Institute of Management in Kerala (under the University of Kerala) on `Micro-finance, a shot in the arm for the poor' here, Dr Arun said that globalisation had allowed many foreign financial institutions to set up shop in India. The flip side was that lending had since come to be focused on urban markets.

This has left a huge untapped market in rural areas. It is high time the nationalised banks shifted their focus to the rural hinterland and contributed to its economic development, Dr Arun said.

Higher levels of financial development are strongly associated with future rates of capital accumulation and the efficiency with which economies employ capital. Faster rates of economic growth would therefore indicate higher levels of financial development.

Adequate finance needs to be made available for economic development. This, according to Dr Arun, can be ensured through services provided by financial intermediaries and technological innovations, since financial development is a corollary of economic development. Thus, positive links exist between financial development and economic growth.

In India, nearly 44 per cent of the population lives below the internationally defied poverty line. In rural areas, it is women who handle the resources to run the households. So, development policies should be framed in such a manner that they target women, who are encouraged to start micro enterprises. Financial assistance through small loans would permit them to establish income-generating activities and become socially empowered in the process.

Nearly $9 billion has been provided in micro-finance to more than 15 million individuals around the world. Micro-finance has been successful in satisfying the varied and complex livelihood needs. The importance of savings should be inculcated among the lower strata of the popular through money management programmes such as reciprocal lending.

This involves lending of small amounts by members of a community to each other within the same neighbourhood, or sharing of commonly consumed goods, that make up the bulk of financial transactions.

Group lending groups are independent of Government control and have a high degree of autonomy from interference by bureaucrats and politicians. It helps individuals access useful lump sum through loans and allow borrowers repay the same in small but frequent and manageable instalments. Examples are Safe Save in Bangladesh and Self-Help Groups in India, Dr Arun said.

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