The Hindu : Karnataka / Bangalore News : ‘Micro-finance can play a role in organising rural economy'

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Friday, Dec 31, 2010
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Karnataka

Karnataka - Bangalore

‘Micro-finance can play a role in organising rural economy'

Staff Reporter

RBI Deputy Governor hopes MFIs will create
a base for banks
Over 50 per cent of the country's population is still outside the banking net: K.C. Chakrabarty

BANGALORE: Commenting on the raging controversy over micro-finance institutions (MFI) and the high rates of interest charged by them, Deputy Governor of the Reserve Bank of India K.C. Chakrabarty has said that such institutions can play a role in organising the rural economy.

He was speaking to presspersons after inaugurating the 319th Grameen Vikas Kendra at Mallohalli village at Doddaballapura on Thursday. With this opening, the bank has achieved the target of financial inclusion outreach programmes allotted to it by the RBI.

It has branches in 14 villages and Grameen Vikas Kendras in 319 villages.

Expressing reservations about categorising MFIs as “all bad”, Mr. Chakrabarty described MFIs as a sort of conduit for bringing the entire rural economy within formal banking structures.

He said, “Now there are three players — banks, non-banking financial corporations (NBFCs) such as MFIs, and moneylenders. Our broad goal is that NBFCs must capture the moneylenders' customers and banks should capture the NBFCs' customers.”

Charting out the desired path, he said he hoped to see moneylenders completely out of the picture in the next 20 years.

“Then, we hope to have only banks and NBFCs.” He also said that MFIs should inculcate good credit practices amongst their clientele and improve their credit worthiness.

While conceding that problems exist with the way certain NBFCs, particularly MFIs, conduct their business, he advocated a more nuanced approach.

“We must identify the good MFIs and encourage them while the bad MFIs should be prevented from doing business,” he said while stressing that all MFIs are not in the business of making a “quick buck”.

On the punitive action that could be taken against errant MFIs he said that the Malegam Committee was working towards that.

Long way to go

Commending the Corporation Bank for playing a “pioneering role” in the pursuit of financial inclusion, he said that there was still a long way to go.

“In the 40 years since the nationalisation of banks over 50 per cent of the country's population is still outside the banking net and only 10 per cent are able to actively seek credit,” he said, and added that banking had to reach 6,00,000 villages in the country.

Averring that this slow rate of progress was largely due to lack of banking technology, he said, “But with initiatives like this (Grameen Vikas Kendra) where branchless banking has become a reality, we can see a revolution in the banking sector in the next few years.”

Another option

Branchless banking is a tech-enabled, low-cost alternate delivery channel that facilitates basic banking facilities to rural communities at their doorstep through business correspondents at an affordable cost.

Smart card

Customers are provided with a smart card, which acts as an e-purse and e-passbook and holds multiple accounts of a customer such as savings account, loan account, general credit card and recurring deposits.

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