Rural Development and Banking

Due to a vast section of the country residing in rural areas and many of them living in poverty, the development of the rural regions becomes the central focus point in the overall growth and development of the country. 

Gandhi once said that the genuine advancement of India didn’t mean, essentially the development and extension of modern metropolitan places however principally the improvement of the towns.

Aspects of Rural Development:

It comprehensively encompasses the development of various areas lagging in the context of the overall village economy. Some areas include: 

• Factors of Human Resource Development – literacy (specifically female), education and skill development, health (sanitation and public health)
• Land reforms
• Development of the productive resources of each locality
• Infrastructure development like electricity, irrigation, credit, marketing, transport facilities, etc
• Poverty alleviation measures

Utilizing interventions in these areas, rural populations can be equipped for higher productivity and further diversification into non-farm productive activities. 

Credit and Marketing in Rural Areas:

Due to the long gestational period between sowing and receiving income from the produce, farmers take loans for meeting various social and economical expenses. 

• Historically rural credit primarily originated from money lenders and traders, which wasn’t fair and often led to exploitation of the borrower, leading to a situation of debt-trap
• In 1969, an adaptation of the social banking and multi-agency approach was adopted to meet the demand for rural credit
• As an apex body of the rural financing system, NABARD (National Bank for Agricultural and Rural Development) was set up in 1982
• Production-oriented lending due to the Green Revolution
• Today a vast institutional structure of Business banks, RRBs, Cooperatives Banks is available with a point of giving satisfactory and modest credit                                                                                                                                                                                                         To bridge the limitations of the formal credit system, like lack of collateral, etc. Self Help Groups (SHG’s) play a significant role in the rural credit framework today:

1. By May 2019, 54 lakh women SHGs have nearly six crore women members in India, signifying the role of SHGs in Women Empowerment. 
2. About Rupees: 10- 15,000 per SHG and another Rupees 2.5 lakhs per SHG are provided as a Community Investment Support Fund (CISF) to help them take up self-employment opportunities.                                                                                                                            For the most part, these credit arrangements are alluded to as miniature credit programs. 

Rural Banking — a Critical Appraisal

Positive impacts of rural banking: 

• Better availability of credit facilities to meet production needs due to expansion of the rural banking system
• Food security due to enhanced production 

Gaps in the rural banking system:

• Other institutions except Commercial Banks have not been able to mobilize deposits and conduct effective loan recoveries
• This has led to high loan default rates

In the post-reform period, the focus has shifted away from reforms in the rural banking sector