The Co-operative Societies Act of 1904 was a milestone in the development of microfinance in India. It paved the way for establishing a network of co-operative credit societies and banks in different parts of the country. The nationalisation of the Imperial Bank of India by its conversion into the State Bank of India in 1955 was the starting point of reform of banking as a source of credit for farmers.
The Imperial Bank, initially, served the credit needs of merchant traders of Clive Street in Calcutta. The compulsions of imperial finance as well as the needs of European merchants prompted it. The first step was the establishment of the Bank of Calcutta in 1806 in the East India Company days under a Royal Charter. The first joint stock bank in British India sponsored by the Government of Bengal. It was converted into the Bank of Bengal three years later and received its Royal Charter.
Following Bengal's lead came, after three decades, the Bank of Bombay with the Bank of Madras in tow in 1843. These Presidency Banks, as stated, were joint stock banks doubling up as banking institutions. Meanwhile, paper currency became the vogue through a formal law. When the East India Company yielded place to the British Crown, the three Presidency banks were amalgamated into the Imperial Bank of India in 1921. Independent India nationationalised it in 1955 by enacting the State Bank of India Act.
The establishment of the Reserve Bank of India as a bankers' bank to handle government financial activities resulted in the Imperial Bank of India and its successor the State Bank becoming solely commercial institutions. The nationalisation of 14 commercial banks by Indira Gandhi in 1969 also resulted in a quantitative expansion of sources of rural credit on a fairly large scale. Still, the effect was merely quantitative. A case in point is the launching of regional rural banks in 1975. The interlocking arrangement of equity participation by the state governments, the Centre and the nationalised banks, no doubt resulted in a bonanza, but only quantitatively, with 150,000 retail rural credit outlets for an estimated rural population of 680 million.
It meant 4,155 people per credit outlet, which should have been adequate if 45 per cent of the members of the primary agricultural societies had not been non-borrowing members and about 75 per cent of the outlets had been dormant. The upshot was insufficient recycling of funds. Worse still, instead of correcting these drawbacks more avenues were being created. On top of these came the populism tendencies hunting for easy votes at the cost of credit outlets in the rural areas. With loan melas things reached their nemesis. The recent bank loan waiver of Rs 60,000 crore, announced by the finance minister, is not qualitatively different.
Even if temporary relief is afforded to some people, the approach is antithetical to the creation and promotion of microfinance as a means of enabling the village poor to become responsible users of credit from banks and other lending institutions. Gandhiji's idea of antyodaya as a means of alleviating rural poverty highlights the difference in approach and mindset. It consists of no more than giving a pair of goats to the poorest family in the village to enable them over time to rear a small herd of goats. The goat is called the poor man's refrigerator because it yields milk many times in the day. As more and more villagers qualify for the grant of the goats, the number of poor people in the village becomes perceptibly less.
The SEWA experiment in Gujarat under the stewardship of Elabehn Bhat is another example. It harnessed the time and talent of the self-employed, mostly women. These establish the dominance and durability of the self-help group (SHG)-bank linkage method. In conclusion, the small borrower, especially a self-employed woman, is conscientious customer. She rarely defaults on payment she knows that it would be at the cost of her sisters.
This weighty volume is an illustration of embarrassment of riches, despite 25 scholars writing with acknowledged experience in banking turning the spotlight on the concept of microfinance and its operation in diverse aspects.
MICROFINANCE IN INDIA
Edited by K G Karmakar
Sage
Pages 489, Price 695
