INTRODUCTIONIndia has a large rural population, spread over a large area posing a challenge for the Government to develop them, Financial Institution to involve them in their purview and Corporate to tap the bottom of the pyramid for sustainable market development. One of the most important hurdles in the fulfilment of these goals is the lack of financial inclusion. Government spending on rural development is not giving results due to the inefficiency of the system (Trickle down effect), financial institution can’t finance because of high risk involved and corporate not able to tap the rural market because of lack of purchasing power of the rural people. If we analyse the data of last few years we see the gap between the rural and the urban standard of living is increasing and the financial institution and the corporate are concentrating more on the urban population because of high returns and easy accessibility. The argument can be bolstered by following data. Number of small borrowing account in rural areas increased by 2.5% where as the same in urban areas increased by 13.8% between 2000 and 2005. For the same period number of bank offices increased by 330 in rural areas where as in urban areas it rose by 2575(source: RBI). This growing inequity need to be curtailed and minimised for the purpose of poverty reduction and overall growth of the rural India. So to achieve an overall social improvement through financial inclusion, a perfect frame work in which Government, Financial Institutions (FIs) and Commercial entities can work together, is required. The barriers to “ready” rural access to finance are high transaction cost, credit information asymmetry, high uncertainty or risk, use of credit for non-productive purposes, lack of training, knowledge and awareness about opportunities and changing technology etc. In the context of solving these issues and achieving stated objectives, a model in which different stakeholder can play a substantial and effective role with equal participation from government, financial institution, private companies and the rural masses can change the scenario of financial inclusion at very grass root level. Following role need to be played by different stakeholders to achieve 100% financial inclusion:
1.
GovernmentThe assistance provided by the government in the form of National Rural Employment Guarantee Programme “NREGP” (which includes providing at least 200 days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work) can be divided into two parts. One will be given as wage and the remaining part (approx. 30%) can be kept as security by the Government. Amount kept by government can be used as security by the Financial Institution to provide credit to any other adult member of the family to start up his /her own work, recommended by the person working under NREGP. This step will increase the confidence of FIs in rural lending as it will mitigate their risk. Also, policy issues like Credit Information Bureau Act, 2006 (Dr.Rakesh Mohan, 2006) can help the FIs to get credit information about these people, so the credit limit can be decided accordingly. The Government can take such a step with any other scheme meant for rural development. The interest earned by government by keeping the security amount with banks can be used in project like Bharat Nirman.
2.
Financial Institutions FIs involved will include Commercial Banks, NBFCs and Foreign Banks. As their major concern is high risk and high transaction cost, the former can be supplemented by security mechanism of the model provided by the government where as the transaction cost can be reduced by the use of concept like Mobile Banking and telecommunication (which will cater to the needs of several villages thus increasing accessibility and reducing cost). Retired Postmen and school teachers can be used as representatives for FIs for credit enhancements in the form of reliable information. Starting with lending activity, a relationship can be built with rural people in subsequent years (in the form of savings and insurance) which will further enhance the business of these FIs. Another forward linkage can be established among the Banks/FIs and the Commercial Entities, who will purchase the end product made by the rural enterprises, in the form of better services and easy lending.
3.
Rural householdThis model provide a solution for the rural household to get out of the vicious cycle of poor economic condition for e.g. low credit availability leads to low risk bearing ability which leads to low productivity leads to low value addition and finally to low returns. The model benefits the rural household in providing financial inclusion, easy credit availability, full year employment, sense of savings(as the 30% amount with Government will be given to them at the end of the financial year in the form of bulk amount). The credit received by the rural household will be used in starting their own work for which the training and knowledge will be given by the Commercial entities, who will sell their end products in the market. So, by applying this approach we make sure that the credit will be used only for the productive purposes and thus helping the rural household in increasing their income, clearing their debt and improving their living standards.
4.
Commercial Entities/Private companies These entities will provide support to the rural household by providing market for their end products and imparting essential skills and training to produce market acceptable products. In turn, there will be a boost to the rural marketing, rural retailing and consumerism thus tapping the huge untapped rural market, with a sense of corporate social responsibility.
CONCLUSIONAs the need of the rural credit is obvious, the proposed model is a win-win situation for the Government, Financial Institutions, Commercial Entities and Rural household with everyone getting benefited. By adopting this model, Government will efficiently use the same resource for NREGP in employment generation as well as facilitating credit to the rural household. Financial Institutions will mitigate the risk and lower the cost of transaction in lending credit to rural masses and in turn will expand their business like insurance at the bottom of the pyramid. From the view point of commercial entities, it will be proved as an opportunity to get associated with rural people to attain a market for sustainable development, whereas for rural people the model will open up a plethora of opportunities to transform the vicious cycle into virtuous cycle
Mr. Pradeep Srivastava and Mr. Shashi Shekhar Interacting with students at MANAGE
