the banking system and rural india - economic and political weekly
TRANSCRIPT
The Banking System and Rural India
M O D E R N economy may he called "bank economy" . The bank ing
system spares the ind iv idua ls and ti le communit ies the t rouble of stockp i l i ng bu lky chattels and enables them to attain domestic security and transact business by means of ever-negotiable bank accounts.
For once it has been necessary to say the obvious, because bank ing has been the target of vicious pol i t ical attack and multi-slinging f r om Lef t and Right over several decades. However, banks were func t ion ing in the Fascist and Nat ional Socialist countr ies yesterday in spite of their repeated denunciat ion of " interest s lavery" . They are operat ing in the Communist countries today, in spite of some of the more picturesque propagandist al legations, compar ing bank directors to leeches.
That pol i t ic ians on the extreme Right as wel l as the extreme-Left ended up by adapt ing, instead of destroying, the hated banks, is no indicat ion of a change of heart. They may have merely discovered that banks are indispensable for the admin is t ra t ion of an up-to-date economic system, whatever the pol i t ica l complexion, racial composit ion or social phi losophy of the government.
It is not a mere theory, but a very tangible fact that banks, as the coo rd ina t ing centres and observation posts of economic act ivi t ies, transcend national as wel l as ideological f ront iers in this modern age. At the present stage of development, banks are alone capable of usher ing the surplus product ion, — and surplus product ion does exist even in the poorest distr icts of the poorest countr ies — into product ive investment and thus promote technical progress and human welfare. When we speak about "underdeve loped" terr i tor ies, we could more accurately use the term ' ' under -banked" terr i tor ies.
The p r i nc ipa l cause of India 's economic p l igh t is therefore the melancholy fact that eighty per cent of the country has so far remained outside the bank ing network. I t is, in consequence, a v i ta l p rob lem, and not just fo r a certain section of the publ ic , but for the ent i re nat ion, what can be done to extend the bank ing faci l i t ies to the ru ra l areas?
There is hardly any c i rculat ion of money in the very small vi l lages,
even where the popu la t ion is not exactly poor. The local labourers and craftsmen receive payments in k i n d , so does the vil lage Brahmin fo r his rel igious services. Even the vi l lage bania may not be able to change one single rupee-note.
In the larger villages or smal ler townships, however, there is a considerable volume of commerce, busy bazars, even some industry . There are usually several large, comfortable and recently re-decorated houses test i fy ing to the material wel l -being of the inhabitants. In such localities there must be Some amount of bankable savings wh ich could be p ro f i tab ly integrated into the bloodstream of the national economy.
The Barclays Bank f r o m London had recently a very encouraging experiment wi th its publ ic i ty campaign in Niger ia . They used the medium of the f i lm screen, simple language and wi t ty cartoons. Since there are at least occasional cinema shows in the larger Ind ian vil lages also, the experience of the Barclays Bank may have some bearing on the stratagem to be devised for this country . However, mak ing people bank-conscious is only p a r t - and the smaller pa r i—o f the problem here. The real difficulty is how to make banking services available to the well-to-do in the rura l communi ty .
The opening of branches by the large banks in the vi l lages—even in the largest ones would not be a pract ical proposi t ion for a very long l ime to come. A novel approach has therefore to be devised for the in ject ion of the hidden wealth in the countryside into the veins and arteries of the nation's f inancial system.
The best solut ion, in theory at least, appears to he the establishment of a " R u r a l Bank ing Society" w i th the par t ic ipat ion of India's leading banks. Wh i le direct Government association w i th the project might not be desirable, the official circles would have a f inger in the pie through the State Bank of Ind ia in any case.
Such an agency could set up its offices in some of the prosperous rura l and agr icu l tura l centres, preferably in co-operation w i th several leading local merchants and fa rm-ers whose presence on the board
would create popular confidence. Wh i l e banks, according to the natural scheme of things, usually seek to collect deposits before grant ing loans, in the case of rura l Ind ia we may have to put the cart before the horse for the sake of long-term benefits.
Even by grant ing local loans wi th the max imum of security and making investments w i th the m i n i m u m of r isk, the Rural Bank ing Society would create in the vi l lagers the necessary goodwi l l towards itself and its operat ions. 'Green Credi t ' to farmers against the new crop, the f inancing of small f ru i t -bo t t l i ng plants in the h i l l y regions, fish-tann ing works at the seaside places, land reclamation and improvement projects in the purely agr icu l tu ra l distr icts could offer a sui table outlet for short- term, comparat ively safe and potential ly lucrat ive exploratory activi t ies.
Once the vi l lagers are convinced that the Rural Bank ing Society is a he lp fu l f r iend and a wise counsel, the possible in i t ia l distrust w i l l melt and the local cash w i l l find its way f rom underground hide-outs, hay-slacks and pi l low cases into the savings books and current accounts. Especial ly i f the "exp lo ra to ry investments" by the Rural Banking Society prove effective in increasing the villagers" income, the borrowers of yesterday w i l l come forward as the depositors of tomorrow. The new Society w i l l thus gradual ly uni fy the hi therto separated economies of urban and rura l Ind ia fo r the benefit of both.
Obviously there would not be enough funds and experienced personnel to cover the entire country wi th Rural Banking Societies r ight f rom the beginning. However, It would certainly be worth the whi le and the risk to inaugurate a small pilot project in one of the reasonably prosperous and comparat ively "daco i t -p roo f " areas. Wh i l e the government has undertaken numerous commendable schemes to util ise the vast natural resources of the sub-continent, the l ime has come to attempt the mobi l isat ion of the hi therto equally untapped f inancial resources of Ind ia 's extensive ' 'backwoods' ' .
1083
George A Floris
THE ECONOMIC WEEKLY July 2, 1960