Developing Rural Finance in India

Topics: Poverty, Bank, Financial services Pages: 11 (3753 words) Published: August 8, 2010
1. Abstract: Rural Finance is about providing financial services for people living in rural areas. It comprises credit, savings and insurance in rural areas, whether provided through formal or informal mechanisms. Financial Development can exert a significant influence on the distribution of Income. In this paper, using Indian rural financial programs implemented by various financial institutions like NABARD, IFAD, SHC, etc. we investigated the various reforms / developments in Indian rural financial system. The investigation shows that, despite positive economic development in India in recent years, the number of people living below the poverty line has decreased only slightly. 2. Keywords: Credit, Savings, Insurance, Rural Finance, Financial Development, Micro finance, Agricultural Credit, Gross Domestic Product, Economy, Nabard, Acronym: NABARD: IFAD: SDC: RBI: RRB: SIDBI: National Bank for Agricultural and Rural Development International Fund for Agriculture Development Swiss agency for development and Cooperation Reserve Bank of India Regional Rural Banks Small Industries Development Bank of India

3. Objective of Study: The main objective is to study importance of developing rural financial systems. To study the impact of various programmes and schemes implemented by Government as well as Non government bodies across rural areas, for financial development.


4. Hypothesis: The Rural sector is one of the pillars to the overall economic development of India through its agricultural and non agricultural subsectors. However this sector has suffered adversely from misdirected policies of government. The importance of rural sector in Indian economy cannot be undermined. The government has taken many initiatives in the field of rural development. But the moot question is: Have these steps proven enough? The study has observed that the Government policy has created a `financial climate' that is not conducive to lending in general, and to rural banking in particular. Despite government’s efforts over last 62 years, rural development in India has not as it was envisaged. Considering the vital importance of this sector to our economy, there is an urgent need for shift in the overall strategy for rural development. Therefore there is need to re-focus the policies toward this sector, encouraging financial institutions, NGOs and providing adequate, affordable & timely financial services in this endeavor of developing rural financial system. 5. Introduction: An understanding of rural finance helps explain the livelihood strategies and priorities of the rural poor. Rural finance is important to the poor. The poorest groups spend the highest proportion of their income on food – typically more than 60% and sometimes as much as 90%. Under these circumstances, any drop in earnings, or any additional expenditure (health or funeral costs, for instance) has immediate consequences for family welfare – unless savings or loans can be accessed. Financial transactions are therefore an integral part of the livelihood system of the poor. A growing body of literature on rural financial development has shown that access to credit and savings services is an essential safeguard for low income households against the risk of slipping into poverty. While there is a numerically strong infrastructure of formal financial institutions in rural India, they often lack the capacity to provide adequate demand-oriented financial services. Structural obstacles hamper the sustainable development of the financial system in India. 3

We examine the impact of financial development on income inequality in rural India. The rest of this paper is organized as follows. The next section provides a brief theoretical review on Developing Rural Financial System. Section 7A focuses importance of developing rural finance. Section 7B focuses financial institution deploying various schemes and policies for developing rural financial system. Finally this paper concludes...

References: Budget speech of Former Finance Minister P Chidambaram 's Budget 2008-09 Interim Budget 2009-10 The Economics Times Economic Survey 2003 Yale Global publication of the Yale Center for the Study of Globalization.
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