Half of farmer households in India still have no access to credit: RBI Dy Governor

By Naagesh Naaraayana

Microfinance Focus, Aug. 16, 2009: Nearly half of farmer households in India do not have access to credit either from the banks or other non-banking sources, said RBI deputy governor Dr. K.C.Chakrabarty, speaking at Mint conference on the theme ‘Banking: Key Driver for Inclusive Growth’, held recently in Chennai.
This underscores the urgent need for financial inclusion in the country where only 13% are availing loans from the banks in the income bracket of less than Rs.50,000 and 53% people are still taking loans from the institutional and non-institutional sources only for emergency purposes, he noted. As of 2007 figures, one branch caters the banking needs of 16,000 population, leaving millions still unbanked or unaddressed, he said.
A quick look at the data on the sources of loans and also percentage of persons having annual income less than Rs.50,000 show that 28.3% had bank accounts and only 13% had availed of bank finance and even in higher income bracket exclusion existed, he remarked and added that the recent focus of the bank has been on providing access to affordable banking services to every person.


Amid concern that the benefits of economic growth have not been equitably shared, inclusive growth ensures equal access to finance, addresses the issue of inequality and may help poverty-reduction efforts by creating economic opportunities for the poor and vulnerable sections of the society. They should not become merely “welfare targets of development programmes”, he commented. Though the Indian economy achieved a high growth during 2003-04 to 2007-08, it could not bring down unemployment and poverty to tolerable levels, he noted.
Explaining the scenario further, he cited the latest seventh quinquennial survey (61st) by the National Sample Survey Organisation which reveals that growth rate of employment increased from an annual 0.98% in the period 1993-94 to 1999-00 to 2.89% in the period 1999-2000 to 2004-05, while the acceleration in the rate of growth of labour force from 1.03% to 2.93% during same period had negative impact on employment rate.
Similarly, poverty ratio has been declining but continues to remain at a very high level of 27.5% in 2004-05 from 36% in 1993-94. “The most disturbing fact is that the income inequality as commonly measured by consumption expenditure (Gini coefficient) has increased in India from 32.9 in 1993 to 36.2 in 2004,” he said quoting a paper by Ali, I. and J. Zhuang in 2007.
He cited the Committee on Financial Inclusion headed by former RBI governor C. Rangarajan which, quoting a study, said countries with large proportion of population excluded from the formal financial system also show higher poverty ratios and higher inequality.

(Written by Naagesh, N.)

© 2009 – 2010, Microfinance News. All rights reserved. 2008-09

2 Comments on “Half of farmer households in India still have no access to credit: RBI Dy Governor”

  • herne wrote on 18 August, 2009, 13:35

    One source of finance for micro-loans aimed at the poor might be social networking sites which allow person-to-person lending. Unfortunately, the besrt known site – KIVA – has no presence in Indian lending due to restrictions.

    By using loan guarantees rather than directly lendin money, the problems of minimum value for any foreign investment disappears. This has the potential to provdide funds for small MFIs and reach many outside the banking system.

    See http://www.unitedprosperity.org to see how this works.

  • Ramu Maurya wrote on 18 November, 2009, 15:14

    Sir, the path of development of Indian economy is driven by growth led development and thinking our policy maker that problem of povrty and unemployment is solved by high growth rate but after five decade, the pproblem remains unchanged. I think that economic growth is necessary condition for development but it is not a sufficient condition economic growth is nothing say about, what is income distribution, what propottion of national income go to poor section , in another words poor section does not receive thier share in national income to that portion to which thay participate in economic activity or thay does not receive in responce their margional productivity.

    Another reason of remaining poverty in india is that poor people could not get financial support from government financial institution. We should give thank to Prof. Muhammad Yunus who develop the idea of microfinance. It is a version of poverty reduction that centers on self-help rather than direct income redistribution. All sides agree that access to reliable financial services might help hundreds of millions, perhapes billions, of low- incpme people currently without access to banks or at the mercy of exploitative moneylenders.

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