The Hindu Business Line : The philosophy and mechanics of rural banking

The volume is an important contribution to the principles and practice of rural banking in India, a body of knowledge which is still in its evolutionary stage (specially in this country).

The author, a UGC Emeritus Fellow, is very clear in his mind about where rural banking stands in the Indian banking experience in its totality and what needs to be done to make it truly effective in facilitating all-round development.

The scheme of the book is as follows. Along with chapters on an `Introduction and Overview' and `Background and Perspective', there are detailed analyses of `Commercial banks and agricultural credit,' cooperative credit, regional rural banks, and micro-finance, the last section being described as the `New development paradigm'.

To focus on the last-named subject, the author differentiates what he has in mind with what has been the conventional practice in past years.

To quote him, "The old paradigm of micro-finance envisaged providing credit to poor people at subsidised rates through public and state-owned banks or financial institutions."

Today, however, there is a "significant departure in testing micro-finance innovations as (an) alternative channel" and, "depending on the prospects and potential, (synergising) the tested approach with the formal system."

In short, as Roy writes, the micro-finance approach is an `institutional device' for directing small credit to the rural poor "in order to alleviate poverty" — and not just meet consumption needs.

The author emphasises the `institutional' aspect of micro-finance as opposed to the segmented, simple, banking operation of extending credit and ensuring its repayment.

The objective is to alter the `socio-economic condition' of rural people for the better and not just provide them with the monetary wherewithal to meet fragmented requirements for funds. Indeed, if one widens the canvas a bit, as Roy writes, rural banking by itself will not be able to deliver the goods unless accompanied by strong initiatives across a broad front.

To quote him, "credit (is)... not so overwhelmingly important than other urgent needs, like public investment in (the) agricultural sector, specially in irrigation."

He adds, "Even credit will not be able to play its part in the long run if investments are not made in developing rural infrastructure," leave alone the fact that the "innovative financial institutions being evolved at the grassroots (level)" will not be able to function effectively on a `sustainable basis' unless accompanied by a package deal, so to speak.

Quite appropriately, the author sets out right at the beginning of his book the contours of present-day rural banking, his considered view being that there is still no widespread conviction that `Rural Banking is Indian Banking' even after so many years after the banking sector was nationalised.

Indeed, he laments the fact that, "While equal access to education is enshrined in the Constitution, equality of economic opportunities by way of banking facilities does not even gain acceptance as a long-term goal."

On the other hand, as public sector social banking has slipped up, the onus for this has been put on rural banking which, as the author emphasises, is just not true.

The book is essential reading for all those who are interested in the philosophy and mechanics of rural banking, especially its future.

Ranabir Ray Choudhury