Financial inclusion to boost rural units

The finance ministry is planning to add loan products to the programme to take banking services to rural areas

The finance ministry has said that it plans to add loan products to the financial inclusion programme, which is aimed at taking banking services to the rural population. Bankers and industry sources said the proposed move would give a fillip to micro and small enterprises (MSEs) in rural India.

In the Central Budget, which was tabled in February, Finance Minister Pranab Mukherjee had committed to take financial services to all villages with a population of more than 2,000.

R Gopalan, secretary (financial services) in the finance ministry, has said that services offered by banks in the first phase include deposits, withdrawals and remittances. “In the next phase we are planning to add loan products,” he said.

These loan products, which would be in the range of Rs 10,000-15,000, will be offered through General Credit Cards (GCC) and Kisan Credit Cards (KCC) for economic activities. Seventy-five per cent of the population is to be brought under overdrafts/KCC/GCC.

Financial inclusion is considered a vital vehicle for taking growth and equitable development to rural India, since access and availability of banking and payment services to the entire population are essential for the creation of an inclusive and efficient economy, and for enabling the Indian growth story to become sustainable and all-encompassing.

According to the 2001 census, there are around 100,000 habitations with a population of over 2,000. The government advised banks to reach all such villages by March 2012. Given the scale of this task, achieving this goal will require multiple channels and technology-driven solutions.

An industry expert pointed out that if agricultural production surged with the availability of banking services for rural customers, it would give a huge boost to small exporters and suppliers of agricultural products.

Similarly, owners of mom-and-pop stores or other cottage industries that are mainly driven by one or two members of a family will benefit from the proposed move.

State-owned Corporation Bank, which uses the branchless banking model for financial inclusion, lends money to small-time vendors (starting from bangle sellers) and a range of small entrepreneurs.

Another example is Chennai-based state-run Indian Bank, which has launched the General Credit Card – National Pilot Project for Financial Inclusion. The scheme is targeted at small artisans, traders, self-employed persons and other entrepreneurs who are sole proprietors.

The beneficiary gets anything from a minimum of Rs 5,000 to a maximum of Rs 25,000 per individual, including the credit requirement for consumption purposes (which is not to exceed 10 per cent of the total loan).

Indian Bank’s other scheme is the National Pilot Project for Financial Inclusion (Overdraft), targeted at small farmers/ marginal farmers, agricultural labourers/ other labourers, salaried persons not enjoying any other credit facilities, and self-help group members.

Kisan Credit Card (KCC)/ General Credit card (GCC) holders whose consumption credit needs are taken care of separately are not eligible under this scheme.

These borrowers have traditionally depended on moneylenders. Indian Bank has tried the pilot at Neravy village, in the Karaikal region of the Union Territory of Puducherry because, it explained, it wanted to release the local population from the clutches of usurers.

The financial inclusion project came in handy. The project enables the bank to provide an overdraft facility on savings bank accounts of up to Rs 5,000 for consumption purposes and a general credit card facility (based on business activity) of up to Rs 25,000 for productive purposes.