Improving Access to Finance for India's Rural Poor

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World Bank Publications, Jan 1, 2006 - Business & Economics - 119 pages
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"Finance is an extraordinarily effective tool in spreading economic opportunity and fighting poverty. India has a relatively deep financial system and wide network of rural banks. But India's financial markets and institutions have not served poor people well; despite improvements in the delivery of financial services over the past three decades, the vast majority of India's poor households, who are concentrated in rural areas, do not have access to formal finance. Improving Access to Finance for India's Rural Poor examines the current level and pattern of access to finance for India's rural households, evaluates various approaches for delivering financial services to the rural poor, analyzes what lies behind the lack of adequate financial access for the rural poor, and identifies what it would take to improve access to finance for India's rural poor. Based on the analysis of a large-scale rural household survey, in combination with an evaluation of the role of financial markets and institutions, this title also examines different forms of financial service provision, including formal, informal and microfinance, raises questions about approaches used so far to address financial exclusion, and makes recommendations for policy advisors and financial service providers on how to scale-up access to finance for India's rural poor, to meet their diverse financial needs (savings, credit, insurance against unexpected events, etc.), in a commercially sustainable manner. Its conclusions will be of interest to anyone involved in economic policy, finance or microfinance, poverty analysis, and poverty reduction."

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Page 96 - Bill to establish the Small Industries Development Bank of India as the principal financial institution for the promotion, financing and development of industry in the small-scale sector and to co-ordinate the functions of the institutions engaged in the promotion, financing or developing industry in the small-scale sector and for matters connected therewith or incidental thereto, be taken into consideration.
Page 1 - Sufiya needed 22 cents to buy raw material for the stools. Because she did not have any money, she borrowed it from middlemen and was forced to sell the stools back to them as repayment for the loan. That left her with a profit of only 2 cents. Yunus was appalled: "I watched as she set to work again, her small brown hands plaiting the strands of bamboo as they had every day for months and years on end. . . . How would her children break the cycle of poverty she had started? How could they go to school...
Page 1 - Nepal people must walk six hours to and from the nearest bank branch at an opportunity cost of a day's wages.54 Facing such hurdles, poor people are often discouraged and simply do not seek loans since they believe that they will be denied credit or will not be able to...
Page 94 - B. Loans to State Governments for contribution to share capital of co-operative credit institutions* .......... C.
Page 2 - Because Sufiya did not have 22 cents, she was forced into the clutches of the middlemen. The middlemen made her accept a measly pittance of 2 cents for a hard day's labor. Finance would liberate her from the middlemen and enable her to sell directly to customers. But the middlemen would not let her have finance, for then they would lose their hold over her. For want of 22 cents, Sufiya's labor was captive.
Page xxi - But the medium term strategy to scale up access to finance for the poor should be to "graduate" microfinance clients to formal finance institutions where they can access standard "individual" loans, possibly on a fully commercial basis. An immediate problem arises in that there are no obvious lenders for microfinance customers to graduate to — none, yet, are close to offering the reliability, convenience, continuity, and flexibility required by low-income customers.
Page 106 - ... the Government/IRDA. The joint-venture insurance company would be subjected entirely to the IRD A /Government regulations. Besides commercial banks, rural cooperative credit institutions are also envisaged as an important vehicle for distributing insurance products in under-served rural areas. The Task Force to Study the Co-operative Credit System and Suggest Measures for its Strengthening noted that this could have the attendant benefit of portfolio diversification for these institutions. QUESTIONS...
Page 55 - Bank provides an initial loan to the NGO/MFI to develop SHGs, but then requires that the NGO/MFI repay the loan in a few years and become a "viable unit" through charging service fees to the groups directly.
Page 75 - MFIs that provide composite services, given the wide array of financial transactions (both borrowing and lending, often simultaneously, and at all levels of income) that characterize the financial life of the poor (Ruthven, 2001; Patole and Ruthven, 2001).
Page 3 - Without access to credit, one avenue of opportunity — self employment — is shut off. As a result, the poor are doubly damned — not only because they lose an option but also because their bargaining power, when they work for those who have resources, is weakened.

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