The Hindu Business Line : Toning up the village credit cycle

AN INDEPENDENT Commission set up by All India Bank Officers Confederation has proposed the revival of development banking as an alternative policy to existing banking reforms. The alarming Rs 23,841-crore Non-Performing Assets of commercial banks under priority sector compels banks to think of development banking.

The recent NSSO survey also reveals that more than 50 per cent of farmer households are indebted. Now, there is a growing realisation among bankers that the twin activities of commercial and development banking will activate credit cycle and address banks' NPA problem. And the ultimate objective of credit to generate income on a sustainable basis could also be achieved.

Bank's credit cycle, in fact, does not work well due to so many factors: Lack of basic infrastructure to sustain economic activities, limited awareness about credit utilisation, populism, illiteracy backwardness and so on. Many things in the village directly and indirectly affect the credit cycle. For example, lack of healthcare affects the working hours of the villagers and erodes their surplus. The absence of a simple eye check-up facility can affect artisans, shortening their productive years. Besides, the absence of transparent market linkages leaves little for the villagers, after repayment of loan. Worse, a chunk of loans often goes to treat ailments and diseases at city hospitals.

Development agencies of the government, NGOs, and banks have to make a coordinated effort to improve the overall conditions of a village, which will ultimately improve credit worthiness of villagers. Credit and credit-linked subsidies are not just to be disbursed and forgotten. Credit must reach the enterprising borrowers and must roll back into the system to be recycled. Banks cannot activate credit cycle in isolation. Farmers' Club is a useful tool to activate the credit cycle. Banks must groom rural volunteers who will work as an extended arm for them.

Bank branches in the rural areas can spend small sums to sponsor informal farmers' clubs. These clubs will ultimately link banks with the borrowers, Central and State agencies, NGOs, entrepreneurs and so on. They can help banks understand the villagers and their economic activities. An accurate village profile helps bankers prepare district credit plan. Proper assessment of the credit absorption potential of a village is possible with the help of local volunteers. A good farmer club is indeed a business proposition for a bank as it would help in deposit mobilisation, as also in credit planning, delivery and recovery.

Well-structured and proactive farmers' clubs can tap the idle energies, and bring all-round development to the villages by co-coordinating the efforts of bankers, government agencies and entrepreneurs.

Today more than 14000 farmers' clubs operate through different bank branches. But their numbers must swell. To form a club the branch manager has to identify 15-20 progressive farmers and educate them on how the credit cycle would lead to the economic development of the villagers. With a farmers' club, a bank can cast its credit net wide without too much risk.

(The author is a Pune-based freelance writer.)