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Scaling Up Access to Finance for India's Rural Poor

In: Social Issues

Submitted By gautham1985
Words 29724
Pages 119
Report No. - IN

INDIA

Scaling-up Access to Finance for India’s Rural Poor

September 6, 2004

FINANCE AND PRIVATE SECTOR DEVELOPMENT UNIT
South Asia Region

Document of the World Bank

TABLE OF CONTENTS

EXECUTIVE SUMMARY

I. INTRODUCTION 2

India’s Rural Finance Landscape 4 What are the financial needs of the rural poor? 4 Rural finance service providers 5

II. ACCESS TO RURAL FINANCE IN INDIA: THE EVIDENCE 8

Supply Side Indicators of Access to Finance 8 Access to Rural Finance: Evidence from the Demand Side 12 Access to savings/deposit accounts 14 Payments Services – Limited use, high cash economy 15 Access to Credit 15 Access to Insurance 17 The Importance of Informal Finance 17

III. WHAT CONSTRAINS ACCESS TO FINANCE FOR INDIA’S RURAL POOR? 19

Why Banks Are Reluctant To Lend to Rural Clients 19 Lack of credit information. 20 The tyranny of collateral 20 Weak legal framework and enforcement issues. 21 Government policy 21 Why Do Small, Rural Borrowers Find Rural Banks Unattractive? 26 Absence of flexible products and services 26 Transactions costs 26 Collateral 27

IV. RECENT EFFORTS IN INDIA TO IMPROVE RURAL ACCESS TO FINANCE: THE ROLE OF FORMAL—INFORMAL LINKAGES AND NEW PRODUCTS 28

SHG-bank Linkage Approach: Linking Commercial Banks to Grassroots Borrowers 28 How Effective Has SHG Bank Linkage Been in Targeting the Poor? 30 Impact on vulnerability of poor households 32 Some Lessons from SHG Bank Linkage 33 Key concerns: Limited outreach and scale of lending and issues in financial sustainability 34 Microfinance Institutions (MFIs) 35 What has constrained the outreach and scale of MFIs? 36 The “Service Provider” Model of Microfinance Piloted by Private Banks 37 The Kisan Credit Card 39 Recent Innovations in Micro- and…...

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