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In an interview to CNBC-TV18, former finance minister, Yashwant Sinha and Vijay Mahajan founder of Basics – One of India’s most well-known micro finance companies discuss the problem faced by the rural people to have access to credit.
Below is the edited script of the interview with CNBCTV-18. Also watch the accompanying videos.
We are talking about financial inclusion and we have got two guests Yashwant Sinha – the former finance minister (FM) of India, a man who gave up his job at the administrative services to enter politics. On the other hand, we have one of the most preeminent social entrepreneurs of India – Vijay Mahajan, an IIT Delhi, IIM Ahmadabad who opened an NGO in Bihar, India’s poorest state and is now the founder and chairman of Basics – One of India’s most well-known micro finance companies.
Q: Let’s start with some statistics, 52% of India’s that’s almost half of India’s farming house holds don’t have access to any form of formal finance. About 73% of all farmer households don’t have access to credit. India is placed in the 50th position just ahead of China as a country with the largest number of financially excluded people. What after 65 years of independence is the cause for this sad statistic?
Sinha: The picture is far from satisfactory. There is a need to do much more. Through force marches we cannot carry on with business as usual mode, and you referred to my field experience I had decades ago as an administrative officer but now that I represent a constituency in the Parliament, I am meeting with people at the grass routes level and understand their problems. There was a stage in our banking system and its development, we remained confined to the metros, the large cities and going to the semi urban areas was consider to be a great…
Q: Punishment almost?
Sinha: No, it was a punishment for those who were posted there but it was supposed to be a great favor done to that particular area. Now, that mindset is chancing and gradually banks are being asked to go into deeper rural areas. But, apart from new devices like the banking correspondence, banking facilitators etc are being thought of.
It’s a question of the mindset. Sitting in Delhi, Government of India can make best schemes but if they are not implemented in the same spirit at the grass routes level then they tend to remain on paper. Suppose, we have a bank branch but the bank branch is not prepared to lend even for good causes – take education loan for example, banks are supposed to liberally give education loan especially for professional studies and without collateral up to a certain level, but they don’t respond when people are going there and they have to come to a local legislature, MP or to Vijay or who so ever.
To put in a word that the bank should respond and I know as a people’s representative that this is a very important aspect of my work to intervene with the local bank branch and ask them to do the right thing, serve the needs of the people.
So implementation and I have been personally telling chairman of banks and other senior officials whenever I interact with them, I ask them, how often do you yourself go to the field, how often do you have ‘Janta Darbars’ (peoples meeting) where you can get to know the problems of the people. There is something called District Level Bankers' Committee – DLBC the bank representatives may or may not come to that meeting and the response is so poor that one gets completely frustrated.
Q: Would it be right to say that the RBI and banks have become urban centric, urban oriented and this job is best left to people like Mahajan, state governments and other NGOs or can the RBI and banks – do they have it in their mind space to get into this at all?
Sinha: It should be a well-planned and determined effort on the part of the RBI, the Indian Banks Association and on the part of the banks to do what is expected from them. For the NGOs, to supplement the work that the banks are doing in the rural areas so that the requirements of the rural people is met.
Q: Have we understood financial inclusion concept rightly because on one hand we want government banks as an obligation to go and do something where an account is open whether it is being operated or not, nobody knows, and what services have to be given, are we clear about it what we are talking?
Mahajan: Unfortunately, we have reduced it to very minimal concept which is opening of no-frills bank accounts and this pursuing that target. The Rangarajan Committee has a top-down world view, it calculated how many people don’t have access to banking services, calculated how many branches there are and the numerator was divided by the denominator and that became the target per branch per annum. What is today called the RBI’s financial inclusion plan 2012 is nothing but that 2007 exercise still continuing just opening no-frills bank accounts.
Q: Just checking boxes?
Mahajan: Yes. Starting from 2008, when the first set of no-frills accounts was opened. Evidence started building up that accounts are getting opened but they are dormant, 80-85% of the accounts were lying dormant. So, by the time we wrote the Raghuram Rajan Committee report, we said we need to switch from supply side to demand side. We need to be more market oriented.
We need to look what the consumer wants and basically what we found was that credit comes number three or four in the list of what people want. Poor people first and foremost want a safe and secure place to save, then they need a place where they can receive either remittance payment from the family members who was migrated to the city or government payments, then they need insurance and finally some need credit and that also starting initially consumption credit.
As a result, what we need therefore in financial inclusion the first step should be financial literacy, then comes opening of a bank account. That finally happened in 2010, one of the recommendation of the Raghuram Rajan Committee was implemented, which allowed business correspondents (BC) to be far more numerous than the earlier generation which was teachers and co-operatives but grocery stores for example can now be BC outlets. As a result, today there are numerous outlets but not as many as needed. You need a bank account but you need a place just within 100-200 meters where one can go and transact. With the rollout of Unique Identification (UID), mobile telephony nearly pervasive and the BC regulations finally reached the appropriate level. In the next two years we will see dramatic advance like we saw in the STD/PCOs, we will see a viral increase in the BCOs.
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